Legal Definitions - death benefit

Death benefit refers to a payment made to a designated individual or entity (known as the beneficiary) upon the death of the person who held a financial product, such as a life insurance policy, pension plan, or annuity. These payments are intended to provide financial support to the beneficiaries and can be distributed as a single lump sum or through a series of regular payments, depending on the terms of the policy or plan.

• Example 1: Life Insurance for Family Support

  Maria purchased a life insurance policy to ensure her children would be financially secure if anything happened to her. She named her two adult children as equal beneficiaries. When Maria unexpectedly passed away, the insurance company paid a significant lump sum directly to her children.

  This illustrates a death benefit because it's a payment made from a life insurance policy to designated beneficiaries (Maria's children) upon her death, providing them with financial support as intended.

• Example 2: Pension Plan for a Surviving Spouse

  After a long career, Robert retired and began receiving monthly payments from his company pension. He had elected a "survivor benefit" option, designating his wife, Susan, as the beneficiary. Upon Robert's death a few years later, Susan began receiving a portion of his monthly pension payments for the remainder of her life.

  This demonstrates a death benefit because it's an ongoing payment from a pension plan, initiated upon Robert's death, to his designated beneficiary (Susan) to provide continued financial support.

• Example 3: Annuity for Estate Planning

  David purchased a deferred annuity to grow his retirement savings, with a clause stating that if he died before the annuity payments began, his niece, Clara, would receive the accumulated value. David passed away before reaching the age when his annuity payments were scheduled to start.

  This is an example of a death benefit because the accumulated value of David's annuity was paid out to his designated beneficiary (Clara) upon his death, fulfilling the terms of the financial product.