Does a Life Insurance Payout Go through Probate?

A life insurance payout can be a significant financial resource for families already dealing with a difficult time – but does it have to go through probate first?

Maybe. Whether or not a life insurance policy payout passes through probate depends on a number of factors such as whether or not the policy has any named beneficiaries, whether or not these people are alive, and whether or not the policyholder intended the payout to afford debts owed by their estate.

Your Policy’s Living Beneficiaries

If your life insurance policy’s beneficiaries are still alive upon your death, the policy’s payout is not considered part of your estate and will not be probated. Instead, the payout will go directly toward your living beneficiaries.

If you die with unpaid debts, your creditors are barred from trying to collect on this payout. This can be crucial if you are in significant debt and don’t believe the value of your estate will cover all of your debts. By naming a loved one as the beneficiary of your life insurance policy, you can assure that your death may not mean they themselves will be saddled with debt trying to make ends meet in your absence.

If all Policy Beneficiaries Have Died

If your life insurance policy’s beneficiaries have all passed on before you, there are two possible ways your payout with be dealt with:

  • The money from your life insurance payout will become part of your estate and enter probate with the rest of your assets and property. In this case, creditors can be paid off with these funds.
  • The proceeds from the payout will pass on to your heirs according to the state’s intestacy laws, which govern how estate property not covered by a will or trust is divided among your relatives. Just as with named living beneficiaries, whoever of your relatives inherits the payout through intestacy laws cannot be bothered by your creditors.

If No Beneficiaries to a Policy Were Named

If the beneficiary designation form on your life insurance policy is incomplete, rest assured that it’s not a loophole that could cost your loved ones much needed financial resources. In this case, inheritance of proceeds is treated the same as if named beneficiaries have died.

Do You Need to Explore Your Options in Life Insurance?

If you’re looking to begin a new life insurance policy or make adjustments to your existing one, please reach out to Insurance Specialists, Inc. Our brokerage has more than 60 years of experience helping clients identify and secure policies with high-quality benefits that can make sure their loved ones are protected after they pass on.

With a valid life insurance policy in place, you can rest assured that something will be passed on to those you love to help them get by in your absence.

Contact us online or call (888) 451-0883 today to ask about which options in a life insurance policy are right for you.

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