Our clients have sent us many questions about the death benefit when buying term life insurance. Here we have put together the common questions that they ask which may be in line with what you are looking for.
How do death benefits work?
First of all, death benefit is the amount that will be paid out to a beneficiary when the insured under the term life insurance policy dies. It is also known as the face amount or the face value of a life insurance policy.
Does death benefit include cash value?
No. Death benefit on term life insurance does not include cash value.
How is death benefit calculated?
To calculate the full benefit that will be paid out to beneficiaries in the event of the insured person’s death, consult the schedule of benefits in the policy.
Most life insurance companies also offer riders, which are additional benefits that can be included in a plan. For example, some riders stipulate that the face value doubles if the insured dies due to a specific type of accident.
Altogether, the face value plus the value of any additional benefits constitute the policy’s total death benefit.Â
Is death benefit the same as face amount?
Yes. They are the same thing, only phrased differently by different life insurance companies.
Is death benefit the same as life insurance?
No it isn’t. Death benefit is the amount that will be paid out to a beneficiary when the insured under the life insurance policy dies.
Our Advice
Determining how large a death benefit to purchase is one of the most important things. When it comes to calculating a death benefit on your life insurance policy, begin by asking yourself the following questions:
• How much money will my spouse and children need to maintain their current quality of life?
• How much will they need to pay my debts, taxes, and other estate-related costs?
• How much will my favorite charities need to replace my donations?
Subsequently, determine the maximum length of time the coverage would be needed. For instance, if your youngest kid is three years old now, you’d want to make sure he or she has a sufficient income through college. That’s another 19 years.
Perhaps it is more cost-effective to use several policies of different face amounts (death benefits) and guarantee periods to cover these various needs. Alternatively, it may be simpler to have a single policy to get everything covered.