Death benefits refer to those benefits that are paid out by an insurance company when a person who has life cover dies. Even though the term is most often used as a plural, death benefits in practice refers to a single lump sum of money that is paid to the insured’s estate.

The sum total of the death benefits is the core element of any life insurance policy. If you make the sensible decision to take out a life insurance policy, you will not want to pluck a figure out of the air. You will want to calculate the amount you would like to see your surviving family get when you die.

Calculating this amount is not quite as straightforward as many people think. Those who decide to set up their own life cover without any professional advice often get the death benefits figure wrong. When this happens, there may not be nearly enough money available for the insured’s family following the insured’s death. Less commonly, people over-insure, and during their lifetimes pay far more money in premiums than they really needed to.

The premium you have to pay for life cover is based on the death benefits that will be receivable, your age, and other factors such as your occupation. The higher the sum assured, (another term for death benefits), the higher the premium. Since premiums will normally be paid monthly over many decades, any over-insurance will end up costing a lot.

Term insurance or whole of life

The vast majority of people who take out life cover take out term insurance. With this type of insurance, the policy will cease at some point in the future, and no death benefits will be payable after that point. For most people, they choose their normal retirement age as the end of the term.

Whole of life policies carry on until the insured dies, so there are always death benefits payable on this type of policy.

It is important to note that if you fail to pay your premiums, you will no longer be covered on either type of policy, so taking out cover involves a long-term financial commitment.

Expert advice

Calculating the death benefits needed can be trickier than people think. You can consult with an expert for free to discuss your options. You may decide to take out simple insurance, or prefer to take out a combination investment/insurance product. An expert will be able to explain your options.