Life insurance is one of the best investments you can have if you have a dependent (or a number of them) who rely on your income. Your beneficiary/beneficiaries will receive a good payment from your investments if you unexpectedly pass away.
Did you know that you can still get a life insurance policy even if there are no beneficiaries who will receive what you invested in it? But if you took a life insurance policy without beneficiaries, who will receive your life insurance death benefit?
Rumors say that the death benefit will go to your estate. But is this true at all, or is it just a hoax?
In this article, we will tell you whether or not life insurance is part of an estate.
Is Life Insurance Part Of An Estate?
The short answer is that it depends. There are many factors to consider before a life insurance policy becomes a part of an estate.
Normally, when you apply for a life insurance policy, you will complete a beneficiary designation form. This means that you will assign another person/people as your beneficiary. Normally, this person/people are your dependents, such as your spouse or minor children.
Of course, when you pass away, your life insurance death benefit will be received by your beneficiary/beneficiaries. That is if they are to outlive you.
Normally, if there are beneficiaries in your life insurance policy, the death benefit will not have to go through probate. This means that your beneficiaries will just receive the life insurance payout.
If you have debts and credits you have left behind, such as your real estate payments and your life insurance policy death benefit did not go through probate, your beneficiaries are not obligated to pay those debts and credits that you owe. The money will just be theirs.
But what if your beneficiaries pass away before you do? Well, there are two things that can happen in cases like these.
First, your life insurance payout can go to your probate estate, and it will be available to pay your remaining bills/debts. The other is that your life insurance death benefit can go to your heirs-at-law.
What Are Heirs-At-Law?
Heirs-at-law are individuals that are very closely related to you wherein they would be legally entitled to inherit your life insurance payout if you do not leave a will. However, this rule differs from state to state as well as the life insurance company’s payment policies.
But what if you do not write any beneficiaries in your life insurance policy? Then automatically, your life insurance death benefit will be received by your taxable estate under estate tax laws.
If you also possess certain economic ownership rights in your life insurance policy at your death, then your life insurance policy payout will go to your estate.
In conclusion, whether your life insurance payout will go to your estate or not will depend on many factors.
