If you have debts, you may be wondering whether your creditors could claim your life insurance proceeds after you die. In most cases, life insurance proceeds will pass exempt from the insured person’s creditors, but there are a couple of exceptions.
When you have a life insurance policy, it’s important to name a beneficiary. The beneficiary would get the life insurance proceeds after you pass away. If you have not named beneficiaries of your policy, proceeds will then be payable to your estate. While individuals named as beneficiaries are not responsible for your debts, your estate is. So, naming your estate as the beneficiary will make funds available to pay valid debts.
If you want to set up your life insurance policy to pay off the outstanding debts of the deceased, you have the option to, but there is no obligation to do so. If the person dies and leaves debts in arrears, creditors can place liens against any property in the estate to recoup their losses, but they cannot go after the insurance policies unless they are specifically written for the purpose of debt payments.
People often make mistakes when setting up their insurance policy. A lot of times I see in my practice is people not updating their beneficiaries. It’s important to review your beneficiaries every few years to ensure its up to date. While it’s not required, talking to an experienced estate planning attorney can help you make the right decision. If you have questions about life insurance proceeds and if yours are protected, please all our office today at (206) 408-8158 and schedule a consultation.