One of the advantages of life insurance proceeds is that they pass directly to the named beneficiaries. A creditor of the deceased has no right to intercept the life insurance payment to those beneficiaries.
However, that advantage is lost if the beneficiary names the "probate estate" or the "estate" instead of a person. In that case, the life insurance funds will pass through the probate court. When that happens, the law requires that all creditors be notified and given time to present their demand for payment. Those creditors have priority and must be paid before any payment to the heirs. In some cases, the life insurance will be exhausted by the creditors, and the family will get nothing.
If you are unsure who to name as the beneficiary of your life insurance, take the time to ask an experienced financial planner or your estate planning attorney. It could prevent a very costly mistake.
If you are new to estate planning and not sure where to start, contact us today for a free consultation.