Life Insurance Death Benefit - Understand Briefly
Life insurance is the most preferred option to secure your family's financial future in your absence through the death benefit offered by the policy. Simply put, the amount that a life insurance policy promises to pay to the nominees in the event of the policyholder's death is called a death benefit.
The death benefit amount is tax-free under Section 10 (10D) of the Income Tax Act of 1961. There are two payout options available for a death benefit: in installments or as a lump sum. The death benefit amount can be used to pay off outstanding loans, replace lost income, and help your dependents maintain their day-to-day living expenses.
What is a Death Benefit?
The death benefit is the pre-decided amount that the insurer pays to your dependents to help them financially after your unfortunate demise during the policy tenure.
Under Section 10 (10D) of the Income Tax Act 1961, your beneficiaries can enjoy the death benefit you leave for them without any tax exemptions. While buying a life insurance plan, you have to select the death benefit payout option, either as installments or as a lump sum.
There are some instances when your claim can be rejected, such as suicide, self-inflicted injuries, driving under the influence of drugs, participation in adventure activities, or engagement in any kind of illegal activity. In these cases, no death benefit is paid to the nominees of the policy.
Types of Deaths Covered & Not Covered Under Life Insurance
Following are the circumstances when the death benefit is given or not given to your beneficiaries:
| S.no | Types of Deaths Covered | Types of Deaths Not Covered |
|---|---|---|
| 1 | Natural disaster | Suicide |
| 2 | Accidental death | Death due to illegal activities |
| 3 | Homicide | Intentional self-inflicted injuries |
| 4 | Terminal illness | Death due to pre-existing diseases that were not disclosed at policy inception |
| 5 | Disability-related deaths | Death due to sexually transmitted diseases |
| 6 | Medical Conditions | Death during war or terrorism |
| 7 | Complications from surgery | Maternity-related complications |
Tax Savings on Death Benefit
Apart from death benefits, you can also enjoy tax benefits in life insurance under different sections:
- Under Section 10 (10D) of the Income Tax Act 1961, your dependents can enjoy the death benefit amount you leave for them without any tax exemptions.
- Under Section 80C of the Income Tax Act 1961, the total premium paid towards the plan offers tax exemptions of up to Rs 1.5 lakh.
How To Claim Death Benefit in Life Insurance?
Life insurance offers assurance that your family will be taken care of in your absence. However, proper knowledge of the death benefit claim process is required to ensure that the death benefit reaches them smoothly and serves its purpose.
Here, we've mentioned the step-by-step process of claiming life insurance after the policyholder's death:
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Step 1 - Inform the Insurance Provider
Firstly, you must inform the insurer as soon as possible about the insured person's death. After that, you have to pick up a claim form from the insurer's nearest branch office. You can also find the form online on their official website.
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Step 2 - Attach Documents
To opt for a hassle-free claim process, submit certain documents with the death claim form to verify the information provided to the insurers about the policyholder's death.
Here, we've listed the required documents:
Mandatory Documents
- Policy Documents
- KYC documents (like a copy of photo ID and address proof) of the dependents
- Duly filled and signed claim form
Type of Death Documents Required Medical/Natural deaths Hospital discharge summary
Doctor's prescriptions
Hospital bills of the deceased policyholder
Additional treatment recordsAccidental/Unnatural deaths Autopsy/Post Mortem report
Death certificate issued by the local authority
Police Reports -
Step 3 - Claim Processing
Once the insurer receives all necessary documents and forms, they initiate the claim process. The provided papers are reviewed and verified, and a decision is made. According to IRDAI rules, all insurers must pay death claims within 30 calendar days. However, this duration starts from when you submit all the required documents.
Conclusion
A death benefit secures your spouse and children from the devastating financial losses that may occur if something happens to you. The nominee can use the payout amount for living expenses and any medical or loan payments. To ensure that this payout reaches your family after you, make sure that you are truthful with the information you provide to the insurer and submit all the necessary proofs at inception for a smooth claim process.
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