The policy contract typically specifies the death benefit’s dollar amount. But there are times when it can be altered.
The policyholder may choose to use the dividends to purchase paid-up additions to the policy, thereby increasing the amount paid upon death, in some policies that are eligible for dividend payments.
The beneficiary does not owe any taxes on the death benefits.
3 Events or policies can also have an impact on the death benefit. As previously stated, unpaid policy loans, as well as accrued interest, substantially reduce the death benefit.
On the other hand, many insurers provide optional riders that, in exchange for a fee, secure or guarantee coverage, including the stated death benefit.
The accidental death benefit and the waiver of premium riders are two of these riders that protect the death benefit in the event that the insured becomes disabled, critically ill, or terminally ill and is unable to pay premiums.
Additionally, beneficiaries may be able to choose how the death benefit is distributed. A one-time payment is the preferred option.
However, beneficiaries of some policies can also choose to receive the death benefit in installments or convert it into an annuity.
An annuity may pay out for a predetermined period of time until the beneficiary’s death benefit is exhausted, or it may pay out for the beneficiary’s entire life. The death benefit accrues interest until it is paid, which may be subject to taxation.
