Everything You Need To Know About Life Insurance Death Benefits

When it comes to protecting the family member’s future, life insurance plans are one of the common and preferred means among Indians. Life insurance comes with a number of advantages as it financially supports your dear ones after you are not with them.

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Most life insurance plans include a death benefit that is paid to your nominee/beneficiary after your death. That amount can be used to repay outstanding loans/debts, replace the lost income, and covers funeral expenses.

This in-depth article covers every detail that one should be aware of about life insurance death benefits.

What is Death Benefit?

Simply put, Death Benefits are the guaranteed or assured amount provided to the nominees/ beneficiaries in the event of the death of the policyholder. The death benefit of life insurance is paid within a month (30 days) of filing the claim in most situations. The nominees have the option to select the type of payout. They can either select to receive a lump sum amount at one time or select to receive a small amount over a large time period.

What is Covered Under Life Insurance Death Benefit?

One of the important things to understand is the scenarios in which the nominees/beneficiaries can receive the sum assured (life cover) amount as a death benefit in a life insurance plan. Before applying for the plan, they should know what is covered under the life insurance after death:

  • In case the death of a policyholder occurs because of health issues or natural causes covered in the policy

  • In case the death of the policyholder occurs due to an accident. An individual should not have been abused/intoxicated at the time of the accident.

  • In case the policyholder commits suicide. The death benefits will only be provided to the beneficiaries, only if the suicide happens at least one year afterward the plan. And, if suicide takes place within the 1st year, then the claim of death will be provided to the beneficiaries.

What is Not Covered Under Life Insurance Death Benefit?

Different types of death are not covered by the term plan. A few of them are as follows:

  • If the life assured passes away because of suicide in the 1st year of purchasing the policy

  • If the policyholder’s death occurs because of any self-caused injuries or hazardous activities

  • If the policyholder passes away due to any STDs i.e., Sexually Transmitted Diseases like AIDS

  • If the policyholder passes away because of using alcohol or drug

  • If the policyholder dies because of a natural disaster like a tsunami or earthquake

Tax Savings on Life Insurance Death Benefits

As per Section 10(10D) of the ITA, 1961, the sum assured along with the bonus received at the time of the policyholder’s death or maturity is fully free of tax. The life assured can also receive tax benefits on term insurance premium paid. Policyholders can also avail of a deduction of up to Rs. 1.5 Lacs u/s 80C of the ITA.

Cash Value

Whole life insurance is a policy where your plan will last for a whole lifetime. In this, a section of premiums paid by you will be secured as a component of the cash value in a savings account. In case of your death, your nominee/beneficiary shall get this cash value along with the death benefit.

Though, if you need cash urgently, you also have the option to cancel your plan, where the cash value will be paid out to you completely. This means, that by canceling the plan you will be surrendering all the advantages related to the policy.

How To Claim Life Insurance with Death Benefit?

To claim death benefit insurance, perform the following steps-

Step 1: Read all the Policy Documents Carefully

Before informing the insurer, carefully go through the policy document and find out whether your existing condition is eligible for claiming death benefit. Read the list of exclusions to ensure that the policyholder’s death is not in the exclusions. And, it is also important to check that the plan is still active and the premium amounts have been paid on a regular basis.

Step 2: Inform the Insurer

Inform the insurance company about the policyholder’s death as soon as possible. Insurers are required to perform the life insurance claim settlement within 30 days of the death claim. This simply means that the more you delay the intimation of claim, the more time company will take for the payout.

Step 3: Submit the Intimation Application

After intimating the insurer, you will need to fill out and submit a claim intimation application to the insurer. You can file a claim by visiting the nearest insurer’s branch or by logging into the insurer’s official website.

Step 4: Collect Relevant Documents

Ask the insurer for some relevant documents and start collecting them. Recover the original documents of the policy and submit them along with other documents. The following documents are required:

  • Original Documents of Policy

  • Certificate of Death

  • Beneficiary’s ID Proof

  • Policyholder’s age proof

  • Medical Certificate

  • Cremation certificate

  • Records of hospital

In Unnatural death:

  • FIR

  • Report of Post-mortem

Step 5: Payout

The policyholder can choose the type of life insurance payout before death. The death benefit can be paid in form of a lump sum or monthly installments i.e., through assured income to the nominee.

Wrapping It Up!

The life insurance death benefit is a smart way to make sure the financial protection of your loved ones. After your death, your family will not have to panic about the daily expenditures. They can also avail of a loan on the plan amount to take care of large expenses such as their marriages, children’s education, etc.

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