Death benefit

What is a death benefit?

A death benefit is the money a life insurance policy pays out when the person whose life is insured dies while the policy is in force. It goes to the nominee, an assignee or the legal heirs, and its size and form are fixed by the policy document. In a pure term plan the death benefit is the whole point of the contract. In savings plans and ULIPs it sits alongside a maturity or fund value.

The death benefit is not always the same as the sum assured. The IRDAI (Insurance Products) Regulations, 2024 define "sum assured on death" as the guaranteed absolute amount payable on death, while the death benefit is whatever the policy says is payable on death. That can include the sum assured plus accrued bonuses, guaranteed additions or the fund value.

How the death benefit is set under IRDAI rules

The 2024 Products Regulations and the Master Circular on Life Insurance Products (June 2024) set floors that every product must meet. As of October 2026:

The minimum multiples do not apply to reduced paid-up policies, pension and annuity products, decreasing cover pure risk products and group fund based products.

The structure differs by product type:

• Term plans pay the sum assured on death. Some versions pay it as a monthly income or a mix of lump sum and income.
• Par (participating) plans pay the sum assured plus the reversionary bonuses declared so far and any terminal bonus.
• Non-par savings plans pay the guaranteed death benefit stated at inception, often the higher of a multiple of premium, the sum assured on maturity and 105% of premiums paid.
• ULIPs pay either the sum assured plus the fund value, or the higher of the two. Partial withdrawals made in the two years before death can reduce the sum assured payable.

The insurer may pay the death benefit as a lump sum or in instalments, if the contract provides for it.

How the death benefit is paid

When a claim is intimated, the IRDAI Master Circular on Protection of Policyholders' Interests (September 2024) sets the clock. A death claim that needs no investigation must be settled within 15 days of intimation. One that needs investigation must be decided and paid within 45 days. If the insurer misses these timelines, it owes interest at bank rate plus 2% from the date of intimation. A claim cannot be rejected or closed only because documents are missing or intimation was late.

If the policy has been assigned to a lender, only the outstanding loan is paid to the lender and the balance goes to the nominee. A policy written under the Married Women's Property Act pays to the named beneficiaries under a trust, outside the reach of the policyholder's creditors.

After three years from the policy date, the date of revival or the rider date, whichever is later, a claim cannot be contested on any ground under Section 45 of the Insurance Act.

What the death benefit means for distribution

The death benefit is the promise that gets tested at the worst moment, so how it is explained at the point of sale decides whether a claim later feels fair to the family.

• Name the number. Customers often confuse sum assured, death benefit and maturity value. A good adviser writes down what the family would receive in year 1, year 10 and the final year, using the benefit illustration the customer signs.
• Check adequacy, not the regulatory floor. Seven times annual premium is a minimum, not a recommendation. In savings plans this floor often leaves a family underinsured, which is why many advisers pair a savings plan with a separate term cover.
• Explain ULIP options. The "sum assured plus fund" option costs more in mortality charges but pays more on death. The "higher of" option is cheaper but the protection shrinks as the fund grows.
• Get nomination right. Most death claim disputes start with a missing, outdated or minor nominee without an appointee. Updating nomination at every service contact is a simple control.
• Disclosure protects the claim. Early claims within three years are where non-disclosure gets investigated. Agents who record health and occupation details accurately on the proposal protect the family's claim.
• Tax treatment is part of the explanation. Death proceeds of a life policy (other than a keyman policy) have generally been exempt from income tax. This treatment was carried into the Income-tax Act, 2025, which applies from tax year 2026-27, though the section numbering changed.