Death Benefits

A death benefit is the payment you receive as a beneficiary of a life insurance policy. The death benefit may be paid as a lump sum or annuity.

If you receive an annuity, the amount you receive 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 that you receive it are explained in the terms and conditions of the life insurance policy. If you are a senior citizen and qualify for Social Security, you are also likely eligible to receive Supplemental Security Income (SSI). For more information, see the Web site of the U.S. Social Security Administration (SSA).

You should also check on what portion of income earned from the proceeds of a life insurance policy is taxable. 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. For more on taxation of proceeds from a life insurance policy, see IRS Pub. 525: "Taxable and Nontaxable Income."

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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax adviser.