Death Benefit
Death benefit is the amount paid to your beneficiaries when you pass away. On a whole life policy, the death benefit is guaranteed by contract and does not decrease as long as premiums are paid.
For whole life banking practitioners, the death benefit serves two purposes:
- Legacy and protection — it transfers wealth to your beneficiaries tax-free
- System capacity — the death benefit relative to your cash value determines how much room exists to add Paid-Up Additions (PUAs) before hitting MEC limits
The death benefit on a participating policy typically increases over time as dividends purchase additional paid-up additions. Your annual statement will show the current death benefit, which Policy Stack records as part of your policy snapshot.
Outstanding policy loans reduce the net death benefit. If you pass away with an outstanding loan balance, the carrier deducts the loan balance from the death benefit before paying beneficiaries.
Related terms: Cash Value, Paid-Up Addition (PUA), MEC (Modified Endowment Contract), Loan Balance