Does life insurance have to be used to pay the deceased debts?
Filed in Law & Ethics on Mar.22, 2010
pc asked:
If I am the beneficiary of life insurance payment after someone dies, do I have to by law use that money to pay off the deceased debts? Or is this something that the bill collectors cannot touch at least legally? How would the creditors even know that there was a payout of life insurance? Anyway for them to know this? Can I get in trouble for not paying?
Mitchell
If I am the beneficiary of life insurance payment after someone dies, do I have to by law use that money to pay off the deceased debts? Or is this something that the bill collectors cannot touch at least legally? How would the creditors even know that there was a payout of life insurance? Anyway for them to know this? Can I get in trouble for not paying?
Mitchell
March 25th, 2010 at 12:40 am
Michelle
I believe life insurance must go to cover the debts of the deceased prior to being dispersed to the beneficiary. That is part of the reason why you take out life insurance.
March 26th, 2010 at 12:53 pm
Megan
Unless you want to be stuck in court and paying it to lawyeres, YES
March 26th, 2010 at 2:50 pm
Jesse
No it isn’t a law that you have to satisfy the deceased debts with the Life insurance thats up to you but what is the right thing to do would the deceased have wanted you to pay off their debts
March 28th, 2010 at 2:09 am
Leo
There are certain loans and debts that cancelled upon someone’s death…like most federal student loans.
However, mortgages, auto-loans, and credit cards are often covered by either the deceased’s estate or the insurance policy prior to being dispursed to the beneficiary.
I suggest getting a lawyer to aid in the paperwork and obligations that go along with being a beneficiary.
March 31st, 2010 at 8:29 am
Erin
life insurance passes outside of probate . It belongs to the beneficiary, not the estate.
In fact, any such insurance of beneficiary entitlement, such as a 401K or retirement passes outside of probate as the beneficiary is the legal owner, not the deceased.
Again, if you don’t KNOW the answer, don’t disservice the poster by answering wrongly.
And yes, I AM an attorney.
April 3rd, 2010 at 2:28 am
Michael
yes, it is considered part of the estate and all assets available must be used to pay any outstanding debts owed before the remainder of the estate may be payed out.
April 4th, 2010 at 11:17 pm
Robin
The proceeds of Life Insurance is an asset of the estate with the beneficiary of the life insurance normally the legal next of kin or the executor/executrix of the estate. Those people would be legally bound to settle all debts of the estate and there are probate courts to make sure that you do that. Now, debtors have a specific amount of time to post claim to the estate with the probate court, following the publication of the obituary. If they fail to file with the court, I’d say they would have a hard time going after the beneficiary outside of the probate court.