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Generally speaking, a life insurance policy is considered separate from your estate as long as you’ve named a beneficiary. This is true even if you’ve accounted for your life insurance payout in your will.

If you don’t name a beneficiary to your life insurance policy, or your only named beneficiary dies and there is no backup beneficiary, then your life insurance payout can get rolled up with the rest of your estate for probate purposes.

If nothing else, the one thing anyone with a life insurance policy on themselves should be sure to do is to name one or more primary beneficiaries and consider backup beneficiaries to inherit the payout if the primary beneficiaries are unable to do so. This strategy can increase the odds of a life insurance policy avoiding the probate process.

Why Should Life Insurance Avoid Probate?

Most people want their life insurance payouts to avoid probate because it means that their loved ones can benefit from as much of the full payout as possible.

Probate is the legal process of proving someone’s will and administering their estate after they die. This process is overseen by the court, so there are various applicable costs that can whittle away at the estate’s total value.

Because a life insurance payout doesn’t have to go through probate, its value doesn’t have to get diminished by court fees or attorney’s fees.

What Happens to a Life Insurance Payout If There’s No Surviving Beneficiary?

If none of your designated beneficiaries are alive or able to inherit your payout, what happens next depends on your state’s laws and your insurance company’s policies.

We mentioned previously that your payout can become part of your probate estate, but that’s not the only possible outcome. Another result can be that the payout will directly pass on to your living legal heirs, who may be those you named in your will. If you didn’t have a will or it was invalidated, then your legal heirs are designated according to your state’s intestacy laws.

What Happens If the Insured Party & Policy Holder Are Different People?

If you own a life insurance policy on someone else, you should assign a successor owner to your policy. You may be able to do this through the insurance company or with your estate plan. Either way, without taking this scenario into account, there can be a lot of hard questions about what to do with an active life insurance policy if the owner is dead, but the insured person is still alive.

For example, suppose a parent takes a life insurance policy on a child who has since reached adulthood. If the parent expects to die before their child, they can assign a successor owner – such as the child’s sibling or another relative – to inherit the policy. Depending upon the specifics of the policy, it may even be possible to give it to the insured child, who can cash it out or designate a new beneficiary and maintain the policy.

In any case where ownership of a life insurance policy changes hands due to the original owner’s death, the successor owner must continue to pay the premium. If they do not, the policy cancels.

Have Other Questions About Life Insurance? We Have Answers.

If you are shopping for the right insurance policy for you and your family, we at Insurance Specialists, Inc. can help you find one that works. We can also walk you through the whole process so that you can be sure that your payout goes directly to the beneficiaries who need it the most without passing through probate.

Learn more about how Insurance Specialists, Inc. can help by contacting us online!