Everything You Need To Know 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 policyholder has the option of selecting the type of death benefit payout. You 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 abused drugs/intoxicated at the time of the accident.

• In case the policyholder commits suicide, the death insurance policy will pay the life cover only if the suicide occurs after at least a year of the policy being active or policy revival. If suicide occurs within the first year of the policy, only 80/90% of the premiums paid will be returned to the nominee.

What is Not Covered Under Life Insurance Death Benefit?

The different types of death not covered by the term plan 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

• If the policyholder passes away due to participation in illegal activities like riots, wars, or other criminal activities

Tax Savings on Life Insurance Death Benefits

As per the new Budget 2023, the death benefits for a death insurance policy are completely tax exempted under Section 10(10D) of the ITA, 1961. This allows your family to receive tax free benefits in your absence. On the other hand, the maturity benefits of death insurance with average premiums of more than 5 Lacs will be taxed. However, if your death insurance policy has average premiums under 5 Lacs, the maturity benefit will be tax free. The life assured can also receive tax benefits on the term death 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.

However, 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 insurance policy. 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 insurance payout 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 ensure the financial protection of your loved ones. After your death, your family will not have to struggle trying to meet their daily expenses. They can also use the death insurance payout amount to pay off any remaining loans or to take care of large expenses such as their marriages, children’s education, etc.

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