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A death benefit is the amount that is paid to the beneficiary of a life insurance policy upon the death of the policyholder. The amount may be a lump sum or annuity.
The IRS generally considers a death benefit to be nontaxable income. For variable annuities, a death benefit is paid to the beneficiary if the contract owner dies before annuity payments begin. If an annuity is received, the amount may be either a fixed or variable annuity. A death-benefit annuity may include a cost-of-living adjustment (COLA) to protect against inflation. In most cases, a death benefit is paid monthly. The amount of death benefit and period for which one receives it are explained in the terms and conditions of the life insurance policy.
In general, most of the death benefit is treated as nontaxable income. However, the portion that the IRS determines is interest income earned on the policy is considered taxable.
The Social Security Administration provides assistance to eligible survivors of an eligible beneficiary by way of a "lump sum death benefit" (currently $255). This death benefit is payable only to a spouse or minor children who were dependent on the deceased. The surviving spouse and minor children can also be entitled to monthly benefit checks.
The Veterans Benefits Counselor at the nearest VA regional office or a local veterans service organization representative should be contacted regarding survivor benefits and to secure a burial flag and/or burial in a national cemetery. If requested to do so, the funeral provider can alert the VA insurance division so that an insurance claim form is sent to the veteran's beneficiary without inquiry on the beneficiary's part. Veteran's mortuary benefits are available only if the veteran was:
- Receiving a pension or compensation for military service
- In a veterans hospital at the time of death
- Indigent at the time of death.
Three hundred dollars are available to an eligible surviving spouse or children. One hundred fifty dollars are available for a plot allowance and can be claimed by the family, funeral provider, or cemetery. If the death of the veteran was a direct result of injuries received while in service, then the veteran's survivors can be eligible to receive up to $1,100.
Some of the other Death Benefits are life or casualty insurance in which if death results from a motor vehicle accident, benefits might be provided under no-fault insurance provisions, employer’s payments which include severance pay and/or vacation time, credit unions, trade unions, and fraternal organizations, federal Government Railroad Retirement Board insurance which provides benefits to the survivors of railroad employees, either active or retired, but depending on length of service, state victims of crime statutes in which some states provide benefits to survivors of a crime victim, federal, state, or local government employees' benefit programs, state or local welfare allowances.
This article was contributed by Prerna Mordani.
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