When a person dies, his or her estate goes through probate. Probate is a public process that verifies that a will or trust was created legally and without duress. It may be challenged by family members or others who may have a reason to do so. Is a life insurance policy subject to the probate process?
In many cases, the answer to that question is yes. If the policy insures the life of another person such as a spouse or a business partner, the cash value of that policy will be subject to the probate process. If the policy insures the testator, or the person who has died, and is paid out to the estate, that amount will be included in the probate process as well.
Insurance policies are not part of the probate process if the policy insures the testator but names a person or entity other than the estate as the beneficiary. This means that the beneficiary of the policy can get the money almost immediately upon the death of the testator, and there is no public record of who gets the money and when the money was received. Additionally, the disbursal of funds cannot be challenged by a third party, and the amount received is not reduced by any probate costs that the estate may incur.
Those who have assets which they would like to pass on after their death may wish to talk to an attorney about how best to do that. Properly structuring assets such as life insurance policies may make it easier for heirs to receive the cash value of such a policy without having to wait several months for the probate process to conclude or be denied that money due to a legal challenge of the will.
Source: Cincinnati.com, "How the probate process affects life insurance", J. Brendan Ryan, May 09, 2014