Does a Life Insurance Policy have to go through Probate?
Generally speaking, no.
Usually, life insurance death benefits are paid out directly from the insurer to the beneficiary or beneficiaries without going through probate. Life insurance is not part of the insured’s estate and is not subject to debt collection, payment of the insured’s bills, or taxation as inheritance.
However, there are circumstances under which the death benefit from a life insurance policy is transferred to the insured’s estate rather than to a beneficiary. Under these circumstances, the life insurance proceeds will be subject to the probate process.
Having trouble with your life insurance claim because of a vague, invalid, or out-of-date beneficiary designation? Are you an ex-spouse entitled to the life insurance death benefit? Do you think you should be the beneficiary of an employer-provided life insurance policy? Call us for your free, no-obligation case evaluation.
Are life insurance proceeds considered part of an estate?
No. Life insurance death benefits pass to beneficiaries by operation of state law, not through the insured’s estate. Keep in mind that a will does not supersede a beneficiary designation in life insurance.
Are life insurance proceeds public record? No.
How do life insurance proceeds end up in the decedent’s estate?
When is Life Insurance Part of the Estate?
When there is an invalid or out-of-date beneficiary designation, or the designated life insurance beneficiary is deceased or cannot be found, the life insurance company pays the death benefit to the estate of the insured.
What happens when life insurance goes to the estate?
When there is no beneficiary on a life insurance policy, the life insurance beneficiary rules dictate that the death benefit will be subject to the probate process.
“Probate” refers to the process by which a deceased individual’s estate is distributed. The executor uses the deceased’s will to determine who are the beneficiaries entitled to a portion of the insured’s estate. If the deceased had no will, the estate is distributed according to the state’s laws of intestacy.
Unlike the process of claiming the death benefit as a beneficiary, which is streamlined and private, the probate process varies greatly state-to-state basis and is a matter of public record. And especially in the case of high-value estates, probate can be a heavily-litigated process, with multiple parties claiming conflicting amounts of the deceased’s assets.
Is the beneficiary of life insurance responsible for debt? Can life insurance proceeds be taken by creditors?
No, and this is one of the reasons going through probate is disadvantageous even if the estate value ends up being distributed appropriately.
If the insured was in debt at the time of death, their estate will first be used to pay off any outstanding debts. When the remains of the estate is distributed to the insured’s heirs, those proceeds may be subject to estate taxes. In contrast, if a beneficiary receives the insured’s death benefit directly from the insurance company, the beneficiary will receive the full amount without debt collection or tax collection.
Many states exempt a specified amount of life insurance death benefits (e.g. up to $50,000) from debt and/or tax collection even after the death benefits are transferred to the insured’s estate, but this depends on the laws in your state.
How an Insured Can Avoid Leaving the Death Benefit to Their Estate
It is in everyone’s best interests that an insured keep their beneficiary designations as up-to-date as possible to avoid probate, debt collection, creating a public record, and possible estate tax.
Designating multiple life insurance beneficiaries such as more than one primary beneficiary or a secondary or contingent beneficiary can provide an effective safeguard in case something happens to a primary beneficiary.
National Beneficiary Lawyer to Help You With Your Life Insurance Claim
Unfortunately, when there is a vague, invalid, or out-of-date beneficiary designation, or if the named beneficiary is deceased, there is frequently litigation over who is rightfully entitled to the policy’s death benefit. This litigation is called a life insurance beneficiary dispute. If the court determines that none of the litigants are rightful beneficiaries, the death benefit goes to the insured’s estate.
If you believe your life insurance claim has been wrongfully denied or that you are entitled to a death benefit that seems to be going to the estate instead, you need the advice of an experienced life insurance beneficiary lawyer. Call us – we get our clients paid!