When applying for life insurance you will come across a lot of industry vocabulary. One of the words you will hear the most often is “death benefit.” So, what is a life insurance death benefit?
A death benefit is the amount of money your beneficiaries will receive when you pass away. In simple terms, it’s your life insurance policy coverage amount.
When you apply for life insurance you have to list a beneficiary(s). This is the person or people that will get the money you intend to leave behind when you die. Often times this is someone that has something called “insurable interest.” This is someone that has a good reason to receive the funding of your life insurance policy. It can be your family members, business partners, a trust, a charity, an estate, or anyone that is currently depending on your income.
So let’s say you have a $1,000,000 life insurance policy and you list your son/daughter as the beneficiary for the entire million. When you pass away, they will get the death benefit amount of $1,000,000.
To simplify it even further: $1,000,000 = Death Benefit.
How Much Should My Death Benefit Be?
“How much life insurance do I need?” That is one of the most common questions for first time life insurance buyers and with good reason. In short, your death benefit should be enough to protect all your financial responsibilities. A good place to start is using our life insurance calculator to determine your need for life insurance.
The first thing to figure out is what are your goals?
If you have people depending on your income, then you will probably want to provide a minimum of 5 to 10 years of your income. On top of that you can include any liabilities like a mortgage, credit card debt, etc. If you have kids then you want to include the cost of a college education in there as well. Lastly, you want to calculate any funeral costs and final expenses that are associated with death.
If you don’t have dependents, then calculating your needs a little more simple. Simply calculate the amount you would need to cover your debts, final expenses and any legacy that you may want to leave behind.
For more information, visit our life insurance needs calculator page.
How Can I Make Sure My Beneficiaries Get The Death Benefit?
This is a legitimate concern for most people. Hearing all the stories of people not getting their life insurance paid out can be scary. But don’t worry not only does it not happen as often as it seems, but it’s also easily avoidable.
Be honest – When applying for life insurance make sure you disclose all information honestly to the agent and the company. Withholding any information can deem the attainment of the coverage fraudulent. If the life insurance company detects fraud during the contestability period, your beneficiaries run the risk of not getting paid. The contestability period is usually 2 years long and can deny payment if death is due to a suicide, intentionally withheld information, etc. (in the first two years).
Beware of your coverage type – This usually comes in two forms.
The first is people don’t realize that the Term Life insurance policies come with an expiration date. So if you have a 10 year term, and the 10 years passes, you no longer have coverage. It doesn’t just stick around. The good news is these days most term life insurance policies come with an option to convert to a permanent policy. Make sure to take advantage of it.
The second issue is some people purchase an accidental policy thinking they got an all cause life insurance coverage. But instead they only get covered in the event of an accident. So if the cause is anything other than, your beneficiaries don’t get the money. While the premium may be attractive because it’s cheaper, you get what you pay for. So if you can qualify for a traditional life insurance policy, steer clear of accidental death.
Work with a reputable company – This will usually take care of all worries regarding lack of trust between the client and the carrier. Companies that have a long history of being around have no reason to defraud you and are financially superior to everything else on the market. Always opt for “A” rated companies due to their financial stability.
Although it is important to note, there has never been a case where a death benefit doesn’t get paid out due to insolvency. Most states have guarantees that pick up the policies left over by the bankrupt company. So they will either get picked up by another company or a reinsurer. Either way, always work with a reputable company.
All in all, if you follow good reason and good ethics you should be fine. However, I always recommend working with a professional to guide you as life insurance can be confusing process to navigate. Having said that, there is good news because you have arrived at your destination if you’re still in the life insurance shopping process.
Buying Life Insurance
If you’re shopping for life insurance you can do so right here by using our quoter with no personal information required. We’re an independent agency that represents over 60 life insurance companies and do the shopping on your behalf. We do this at no extra cost to you! If you have any questions about the death benefit amount or any questions at all, give us a call at 888-492-1967 or hit the chat button below. Welcome to InsureChance!
