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February 19, 2009

Death benefit

Your Guide



Benefits received  by the beneficiary of a deceased:

    • participant,
    • insurance policy owner,
    • annuity owner
    • nonqualified deferred compensation plan participant etc

upon the participant’s/owner’s death

Referring Cite

Governing agreement/document

Additional Helpful Information

  • Death benefits from life insurance policies are usually tax-free
  • Under the pension protection act of 2006 (PPA) :
    • in the case of an employer-owned life insurance contract, the amount excluded from the applicable policyholder’s income as a death benefit cannot exceed the premiums and other amounts paid by such applicable policyholder for the contract.
    • The excess death benefit is included in income.
    • Death benefits may increase due to normal operation of the contract. For example, for some contracts, policyholder dividends paid under the contract may be applied to purchase paid-up additions, which increase the death benefits. The insurer’s consent is not required for these death benefit increases.
    • For variable contacts and universal life contracts, the death benefit may increase as a result of market performance or the contract design. For example, some contracts provide that the death benefit will equal the cash value plus a specified amount at risk. With these contracts, the amount of the death benefit at any time will vary depending on changes in the cash value of the contract. The insurance company’s consent is not required for these death benefit increases.
    • Notwithstanding the anti-cutback rules, a plan sponsor may make any reductions to death benefits as the plan sponsor deems appropriate, based upon the outcome of collective bargaining over the schedules required to be provided by the plan sponsor

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.


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