Glossary

Death benefit

The money a life insurance policy pays to the beneficiaries when the insured dies, usually the face amount adjusted for loans, riders and dividends.

Also called: death proceeds, policy proceeds, life insurance payout

The death benefit is the amount an insurer pays when the insured person dies while the policy is in force. It is the core promise of any life insurance policy. For most term policies it equals the face amount; for permanent policies it can be larger or smaller depending on the policy design and how the owner has used it.

Formula (simplified): death benefit paid = face amount + paid-up additions or other increases − outstanding loans and interest − accelerated benefits already paid − any premium due. Hypothetical example: a $250,000 whole life policy with $30,000 of paid-up additions and a $20,000 loan balance would pay about $260,000. In universal life, option A pays a level amount, while option B pays the face amount plus the account value.

Death benefits paid to a named beneficiary are generally free of federal income tax, though interest earned on delayed or installment payments is taxable, and the proceeds can count toward the insured's taxable estate. Beneficiaries can usually choose a lump sum or another settlement option. Claims can be reduced or denied for material misstatements during the contestability period or under policy exclusions. See is life insurance taxable?, life insurance payout options: lump sum, installments and annuities and how long life insurance takes to pay out.

Last reviewed October 4, 2026

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Related terms

Face amount The dollar amount of coverage shown on a life insurance policy's specifications page, the base death benefit before loans, riders or dividends. Beneficiary The person, trust, charity or estate named to receive a life insurance death benefit or an annuity's remaining value when the insured or owner dies. Settlement options The ways a beneficiary or policy owner can receive life insurance proceeds: lump sum, installments, interest only or lifetime income. Lump-sum payment Receiving an entire life insurance death benefit at once in a single payment, the most common way beneficiaries choose to be paid. Policy loan Money borrowed from an insurer using a permanent policy's cash value as collateral, with no credit check and no required repayment schedule. Level death benefit (option A) A universal life setting in which beneficiaries receive a fixed specified amount; cash value growth lowers the insurer's risk instead of adding to the payout.

Related guides

Accelerated death benefit riders: how they work and how they're taxed An accelerated death benefit rider pays part of a life policy's death benefit early to a terminally ill insured. How it's priced and taxed under IRC 101(g). Accidental death benefit riders: what they cover and exclude An accidental death benefit rider pays extra if you die in a covered accident. How it works, what it excludes, what it costs, and when it is worth adding. Accidental death claims: why they get disputed Why insurers question accidental death and AD&D claims, from intoxication and illness exclusions to unclear causes, and how to build a stronger claim. Affordable life insurance on a tight budget Protect your family when money is short: start with level term, cover the biggest risks first, use work coverage and skip costly products. How to review your life insurance policy every year A yearly check of coverage amount, beneficiaries, premiums, policy values and insurer health, with a step-by-step process and what to act on. Burial insurance vs final expense vs preneed Burial and final expense insurance are the same small life policy; preneed is a prepaid funeral contract. How each works and what happens if plans change.

Related tools

Human life value calculator Estimates the present value of the after-tax income you would contribute to your family between now and retirement. Inflation and your death benefit Shows what a level death benefit will be worth in today's dollars after years of inflation, and how much coverage would keep its buying power. How much life insurance do I need? Add up income replacement, debts, college and final costs, subtract what you already have, and see how much coverage is left to buy.