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Does Life Insurance Have to Be Used to Pay a Deceased Person's Bills?

Beneficiaries vs. No Beneficiaries

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If your loved one has recently died and he or she owned any life insurance policies, then you'll need to understand if the life insurance proceeds must be used to pay off the final bills of the decedent. The quick and easy answer depends on whether the life insurance policy had a designated beneficiary or not at the time of the decedent's death.

What is a Designated Beneficiary?

A life insurance policy has a designated beneficiary if the decedent completed a beneficiary designation form for the policy prior to the decedent's death.

If at least one of the designated beneficiaries survives the decedent, then the life insurance proceeds will pass directly to the designated beneficiary outside of probate and away from the reach of the decedent's creditors. Thus, in this situation, the life insurance proceeds don't have to be used to pay the decedent's final bills.

What Happens if There Isn't a Surviving Designated Beneficiary?

If the decedent did take the time to complete a beneficiary designation form prior to death but all of the beneficiaries named predecease the decedent, then one of two things can happen:

  1. The life insurance proceeds will pass into the decedent's probate estate and become available to pay the decedent's final bills, or


  2. The life insurance proceeds will pass directly to the decedent's heirs at law and outside of probate pursuant to the terms of the life insurance company's payment policies. If this happens, then the life insurance proceeds don't have to be used to pay the decedent's final bills.

What Happens if the Decedent Failed to Complete a Beneficiary Designation Form?

If the decedent failed to complete a beneficiary designation form prior to death, then the same two things listed above can happen - either the insurance proceeds will pass into the decedent's probate estate and be available for paying the decedent's final bills, or the proceeds will pass directly to the decedent's heirs at law and away from the hands of creditors.

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