Death benefits

A death benefit is the payment you receive as a beneficiary of a life insurance policy. The death benefit may be paid as a lump sum or as an annuity (a stream of income or payments to the beneficiary or annuitant).

A death-benefit annuity may include a cost-of-living adjustment (COLA) to protect against inflation. In most cases, the benefit amount is paid monthly. The amount of death benefit and the period for which it will be received, will be explained in the terms and conditions of the life insurance policy.
You should also check on what portion of income earned from the proceeds of a life insurance policy is taxable. In general, most of the death benefit is treated as nontaxable income. However, the portion that the IRS determines is interest income earned on the policy is considered taxable. For more on taxation of proceeds from a life insurance policy, see IRS Pub. 525: "Taxable and Nontaxable Income."

The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax adviser.