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Estate Planning | Probate

Can Life Insurance Policies Avoid Probate?

4 min read
Philip Ahn, Attorney

by Philip Ahn, Attorney

Life insurance policies typically bypass probate proceedings when they are assigned to designated beneficiaries. Policyholders can name specific individuals or entities to receive a life insurance policy’s death benefit, in which case the funds will avoid the probate process and be paid directly to beneficiaries upon the policyholder’s death.

However, exceptions exist, such as when no beneficiary is named or the designated beneficiaries predecease the policyholder without contingent beneficiaries. In such cases, the life insurance proceeds may become part of the deceased’s estate and potentially go through probate.

Designating a Life Insurance Policy Beneficiary

When you obtain a life insurance policy, you can name a beneficiary, determining who will receive the life insurance proceeds upon your passing. Policyholders can generally change or remove beneficiaries at any time.

This beneficiary designation is a legally binding element of your life insurance contract, significantly impacting the distribution of your life insurance benefits.

While the process is relatively straightforward, keeping your beneficiary designation current and aligned with your intentions is essential, as doing so can help you avoid time-consuming legal processes so that your life insurance money reaches its intended recipient.

To avoid having your life insurance plans go through probate:

  • First, ensure your beneficiary designations are current and accurately reflect your wishes.
  • Secondly, consult with an attorney to align your objectives with your broader estate strategy, minimizing the need for legal proceedings.
  • Lastly, communicate your intentions to your loved ones and provide them with clear information about your plans, ensuring a smoother transition of the death benefits when the time comes.

Contingent Beneficiaries

If the initially-designated beneficiary listed on a life insurance policy dies before the insured person, the contingent beneficiary becomes eligible to receive the proceeds instead. Without a contingent beneficiary named on the policy itself, life insurance would go through the long probate process in this circumstance.

This provision is particularly crucial during major life events or when relationships change, as it ensures that money and property are distributed as intended without the need for lengthy legal proceedings. In short, contingent beneficiaries act as a safety net.

Some life insurance policies, state laws, or wills include an automatic revocation of an ex-spouse as a beneficiary. This may not always be valid in complex estate matters. It’s recommended to consult with a lawyer to ensure your life insurance plan durably reflects your wishes after your passing.

Obtaining Life Insurance Death Benefit Payouts Outside of Probate

When a policyholder passes away, the insurance company typically requires a certified copy of the death certificate, and a notification from the legal representative, to initiate the benefit payout process. The life insurance company may also seek out a beneficiary if they are the first to realize the policyholder has passed away, but this is less common.

In cases where the primary beneficiary has died or no beneficiary is named, the distribution will likely involve the probate court and estate taxes, entangling the policy in this complex process.

Opting to keep life insurance out of one’s estate, via a direct beneficiary, separates the insurance plan from the probate process. This advantageous approach ensures that chosen persons receive their share of the funds promptly, offers some level of protection from creditors using proceeds to settle debts, and makes the process relatively straightforward.

It can help to work with a lawyer to ensure that the beneficiary named on a life insurance policy is valid and aligns with estate planning goals.

Legal Disputes Surrounding Life Insurance Proceeds

Court wrangling over life insurance payouts can arise when multiple parties claim the death benefits. These conflicts typically necessitate resolution through legal channels, as they may revolve around disputes related to:

When life insurance proceeds are contested, hearings in probate court or other venues will determine the rightful recipient of the life insurance payout. This makes what could be a straightforward financial matter into a protracted issue.

Anyone can attempt to sue over such a matter, but some suits are more viable than others. Having a named beneficiary (or specifying contingent beneficiaries in a will) will likely lead to a quick end for any lawsuit, especially if a will does not contradict the beneficiary terms.

What Happens Without a Named Beneficiary for Life Insurance

If you neglect to name a beneficiary for your life insurance policy, the proceeds from the insurance policy may become part of your estate assets. In such a scenario, these funds would go through probate, subjecting them to the legal process of settling your financial affairs after your passing. This can complicate the distribution of your assets, since they become part of your estate. 

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