Death Benefits

A death benefit is a payment from a policy or agreement to a beneficiary after the death of someone else. It is generally the face value of the policy minus any unpaid liens or claims against the policy.

Death benefits can be paid in a lump sum over time in an annuity. Annuities can also be paid in either fixed or variable amounts. Variable amounts are policies attached to an investment account. How the annuity is paid depends on how the policy was written.

Some portions of insurance death benefits are non-taxable, but not all. In some policies, only the first $5,000 is considered tax-free. Any amount over $5,000 can be considered gift income and is subject to federal income tax.

Sources of Death Benefits

Employer payments - which can include severance packages and vacation time
Credit unions, trade unions, and fraternal organizations
Victims of crime statutes - in some states
Government employee benefits - federal, state, and local
Welfare allowances
Social Security Administration
Veterans Administration death benefits

Check with any company or organization about qualifications and requirements Some life insurance policies have double or triple pay outs for certain accidental deaths. Other restrictions or qualifications may apply.

If you are a beneficiary of someone's death benefits or are planning for the future, talk with a lawyer about your options. Attorneys can help you protect your loved ones or your rights when it comes to claiming death benefits.