death benefit

Insurance: amount of money to be paid to beneficiaries when a life insurance policyholder dies. The death benefit is the face value of the policy less any unpaid policy loans or other insurance company claims against the policy. Beneficiaries are not taxed on the death benefit when they receive it.

Taxation: payments to a deceased employee's surviving spouse or children, which are tax-free up to a total of $5,000 (i.e., $5,000 automatic exclusion). Any excess over $5,000 may be considered gift income and hence taxable. This exclusion does not apply to a decedent's accrued salary.

1. In taxation, a payment or receipt of proceeds to a specified beneficiary or beneficiaries by an employer, by virtue of the death of the employee. Under certain conditions, the first $5000 of such a payment may not be subject to federal income taxes.

2. Portion (tax exempt) of the proceeds of a life insurance policy representing protection as distinguished from investment value. Policy loans reduce the death benefit by the amount of the outstanding loan balance.