Employee Death Benefits

What Does Employee Death Benefits Mean?

Employee death benefits refer to the amount paid by the employer to the dependents of an employee upon the employee’s death.

Insuranceopedia Explains Employee Death Benefits

The widow or widower of a deceased employee may claim employee death benefits for themselves and on behalf of the employee’s children. Under the law, death benefits paid to beneficiaries or the deceased’s estate are excluded from the beneficiary’s gross income, provided the amount does not exceed $5,000. This exclusion applies regardless of whether the amount is paid as a lump sum or otherwise, whether it is made in favor of an individual, corporation, or partnership, and whether it is paid directly or held in trust. Since $5,000 falls well short of what most families need to replace lost income, dependents typically have to rely on the employee’s own coverage as well, which is one reason term life insurance is so commonly held by working adults with families.

However, this exemption does not apply to amounts payable to the employee before their death, such as compensation for services, payments for unused leave, or bonuses. The size of an employer-paid death benefit also varies a lot from one company to another, and families generally treat any payout as a supplement to personal policies from one of the top life insurance companies.