Whether your life insurance proceeds can be used to pay the debts of your estate depends on whether you’ve named a designated beneficiary.
What is a Designated Beneficiary?
If you complete a form for the purpose of specifying the name of a beneficiary for your life insurance policy then the beneficiary is known as a designated beneficiary in legal language.
If there is a designated beneficiary for an insurance policy then, at your death, the proceeds from that policy belong to the beneficiary. Unless you’ve named your estate as the beneficiary, your life insurance money cannot be used to pay your creditors or any of the bills of your estate. Also, the account would not pass through the probate process even if the rest of your estate is probated. However, if you don’t fill out a designated beneficiary form, or if your beneficiaries don’t survive you, then the insurance money would be included in your estate. This means it would go through the probate process and could be used to pay off the bills of your estate.
Part of establishing and maintaining a solid estate plan is making sure that your life insurance policy is up-to-date, and knowing where the money will go in the event of your death. An estate planning attorney can help you with these tasks.