This article is about 2 of the most exciting topics you’ll ever learn about – probate and life insurance.
Wait, sorry. We meant boring. Not exciting.
But, either way, they are topics that you should probably know about because they may affect your and your loved ones one day. So let’s give you a clear understanding of how these two things relate to one another. And do it as painlessly as possible.
What Is Probate?
We’re going to assume you know what life insurance is. But maybe you’re not as familiar with probate.
Probate is a legal process that happens when someone passes away. When this happens all your assets don’t necessarily automatically pass on to your heirs.
First a court must approve your will (assuming you have one) and appoint someone to be the legal representative of your estate. This person handles the handing out (distribution) of assets of the estate. They notify the heirs and creditors.
Once all your debts are paid off, they will transfer the remaining assets to your heirs.
This can be a long, drawn out process. And people try to avoid it as much as possible. One of the ways to do this is to have assets that fall outside the jurisdiction of the probate court. This means the assets will automatically pass on to your heirs.
Many people wonder about how a life insurance policy plays into this. So does life insurance go through probate or could it be delayed by the process?
Does Life Insurance Go Through Probate?
The short answer to that is no, most of the time, life insurance payouts do not have to go through probate. Usually when a life insurance policyholder passes away, the beneficiary will immediately and directly get the death benefits without it going through a probate.
However, that is not always the case. In some cases a life insurance payout may have to go through probate. And that will delay the process of receiving the payout for beneficiaries.
There are certain factors that can lead a life insurance policy to a probate. One of these is because the beneficiary has already passed away, or they can not be located.
Or it could also be a case where the life insurance policy does not have any listed beneficiaries at all.
Whatever the case, the end result will be that the life insurance policy will go through probate. And then the court determines who should legally claim the death benefit.
When The Beneficiary Is a Minor
Another reason why a life insurance payout may have to go through probate is when the beneficiary is a minor.
That is because a minor cannot legally take ownership of the benefits that they will receive once the policyholder passes away. During the probate process, a legal guardian will be appointed for the minor.
That guardian will hold onto the life insurance payout and manage them. The original beneficiary will only be able to get the payout once he/she turns 18 years of age.
Keep Your Life Insurance Policy Up To Date
The best thing you can do to avoid the life insurance going through probate is to keep your policy up to date. That is, make sure you have beneficiaries on it who can be easily found and are alive.
Doing this will go a long way toward preventing the policy from going through probate. And that’s something you want to avoid if at all possible.
Especially if you have any debts. Because if the policy goes through probate, its payout will be used to pay off any debts, taxes, etc. first. Then whatever is left will pass on to your beneficiaries.
If you can avoid probate, your beneficiaries will receive the full amount of the death benefit.
