how death benefits work
under the contract with the insurance company or other company a death is guaranteed to be paid to the listed beneficiary or beneficiaries as long as premiums are paid while the insured or annuitant is alive death benefits of life insurance policies are commonly issued as a lump sum payment in the full amount of the benefit another option that beneficiaries may have is to accept the death benefit in installments such as quarterly or monthly in a fixed amount until the proceeds are depleted or for a set period of time beneficiaries may also have the option of receiving an annuity that makes payments in installments for life in an amount determined by the insurer or they may opt to take only interest payments and then eventually pass on the proceeds to another beneficiary some insurers offer a retained asset account in which the insurance company acts as a bank holding the proceeds and the beneficiary can make withdrawals for an insurer to issue a death benefit it will likely require a completed claim form along with copies of the contract and a death certificate proceeds paid through life insurance or annuity death benefits avoid probate which can provide the benefit faster probate is a legal process in which a will is reviewed to determine if it s valid however for most policies and accounts if the policyholder does not name a beneficiary the insurer pays the proceeds to the estate of the insured which may be probated death benefits from life insurance policies are generally not subject to ordinary income tax while annuity beneficiaries may pay income tax on death benefits death benefits from pensions are treated differently from benefits from life insurance policies and they may be subject to taxation 12while life insurance death benefits paid in a lump sum are not subject to ordinary income tax if the beneficiary receives the death benefit in installments that include interest then the interest will be taxable and if the death benefit goes to your estate it may be subject to federal or state estate tax if the estate exceeds the estate tax exemption amount 13requirements for payout of death benefitsthe process of receiving a death benefit from a life insurance policy pension or annuity is straightforward first beneficiaries need to know which life insurance company holds the deceased s policy or annuity the policyholder has a responsibility to share policy or annuity information with beneficiaries when they name them as beneficiaries once the insurance company is identified beneficiaries must complete a death claim form providing the insured s policy number name social security number date of death and payment preferences for the death benefit proceeds beneficiaries must submit death claim forms to each insurance company with which the insured or annuitant carried a policy along with a copy of the death certificate most insurers require a certified death certificate listing the cause of death if multiple beneficiaries or survivors are listed on a policy or annuity each one must complete a death claim form 