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Is Life Insurance Part Of An Estate?

Is Life Insurance Part Of An Estate?

People often include life insurance in their estate plans to offer financial security for their loved ones after their passing. It also helps pay for funeral expenses and other costs associated with death. But is life insurance part of an estate? Keep reading to find out.

The Basics of Life Insurance.

Life insurance is a type of insurance policy that pays benefits to people when a person dies. There are two main types of life insurance policies: term and permanent. Term insurance lasts only as long as you keep paying premiums. Permanent insurance continues to pay benefits even when you stop making payments.

What is an Estate?

An “estate” is the total value of everything owned by a deceased person at the time of death. This includes real property, personal property, bank accounts, stocks, bonds, retirement plans, and other assets. It may or may not include life insurance, depending on the circumstances.

When Is Life Insurance Part Of An Estate?

Life insurance proceeds are paid to named beneficiaries. If there are no named beneficiaries, then it is part of the deceased person’s probate estate. That means a probate court needs to determine who is to receive the insurance money.

For estate tax purposes, if the deceased person owned the policy, the estate considers the life insurance as part of its assets. Otherwise, it is not part of the deceased person’s estate.

When Is it NOT Part Of An Estate?

There are two types of “estate” that are relevant here. There is a “taxable estate” which is the total amount that may be subject to estate taxes. For tax purposes, the insured’s estate does not include life insurance if someone other than the insured owns it. It is “outside the estate” for estate tax purposes.

A different type of estate is a “probate estate.” This is property that a court needs to administer. Life insurance is NOT part of the probate estate as long as there was a named beneficiary.

Is there a dispute over who is entitled to life insurance proceeds?

Sometimes parties dispute over who is entitled to life insurance benefits. For example, maybe a divorce decree ordered someone to maintain life insurance for the benefit of an ex-spouse. That person changes the beneficiary of the insurance, and then dies. Now there are two people who have a possible claim to the insurance. In that case, both parties need to contact the insurance company immediately, and hire a lawyer to represent them in an interpleader case.

When Do You Need To Hire A Lawyer To Fight For Your Right To Life Insurance Proceeds?

If your loved one died without having made any arrangements for the disposition of their life insurance proceeds, then it needs to go through probate. Also, if you have a claim to life insurance, but someone else is the named beneficiary, then you need to hire a lawyer to fight for your right to receive these proceeds.

We have handled many life insurance disputes. Give us a call at 602-443-4888 and we will start fighting for you.




Founding attorney Paul Deloughery has been an attorney since 1998, became a Certified Family Wealth Advisor. He is also the founder of Sudden Wealth Protection Law.