Death Benefit

Death benefit represents the primary purpose of life insurance in Australia, providing financial protection when the insured person dies. The benefit amount (sum insured) is determined at policy commencement based on needs analysis considering income replacement (typically 5-10 times annual income), outstanding debts (mortgage, personal loans, credit cards), dependent support (children's education, living expenses), final expenses (funeral costs, estate administration), and future goals (house deposit for surviving spouse, education funds). Death benefits pay regardless of death cause (illness, accident, natural causes) subject to policy exclusions, which typically include suicide within 13 months of commencement or increases, death while committing a serious crime, war or acts of war, and sometimes dangerous activities if not disclosed. Under the Insurance Contracts Act 1984, insurers can contest claims within the first three years if material non-disclosure is proven, potentially reducing or denying the death benefit. Payment timing varies but most straightforward claims settle within 2-4 weeks of required documentation submission: death certificate, claim form, proof of identity, beneficiary verification, and sometimes medical evidence or coroner's report. Complex claims involving non-disclosure allegations, suspicious circumstances, or contestable deaths may take months to resolve. Tax treatment of death benefits depends on policy ownership and beneficiary status: standalone policies pay tax-free to all beneficiaries; superannuation death benefits pay tax-free to dependents but may attract up to 32% tax when paid to non-dependents (adult children not financially dependent, estate distributed to non-dependents). Multiple benefit options may be available: lump sum (standard), income stream, partial lump sum with income stream, or trust structure for vulnerable beneficiaries. Some policies include additional features: advance payment for terminal illness diagnosis (typically 12-24 months prognosis), funeral benefit advance ($15,000-$20,000 paid quickly), automatic indexation increasing sum insured annually, and reinstatement options. The death benefit provides crucial financial stability during grief, enabling mortgage payments, debt clearance, income replacement during adjustment periods, and maintenance of living standards for surviving family members.