How Does Life Insurance Work?
Posted June 24, 2009 – 10:18 pm in: structured settlements FAQIs it true that when you have life insurance and pass away that your debts get paid first out of that policy? How does the people that you owe money to know you even had life insurance?
Tags: Does, Insurance, Life, Work
7 Comments
If you name a beneficiary they get the money. Your other assets (house, cars, bank accounts) will have to be sold to pay off your debts but the life insurance can’t be touched by your debtors. That’s the beauty of life insurance. It’s there when your loved ones need it and they don’t have to worry about debt collectors taking it or the government taxing it.
It’s not true that anyone has access to the life insurance benefit unless the owner of the policy, usually the insured, specifically signed benefits to a bank or lender. There is no publicity or notification of a life insurance benefit (unless as stated, that the policyowner signed part of the policy to a lender). One should always name specific people as beneficiaries. Leaving it to “the estate” means it follows what the will says and will also be subject to probate cost.
That’s not true. Upon your death, what you owned stands good for what you owed. If you have $20,000 in assets and you owe $30,000 in bills, the creditors can force the sale of your assets to help pay off your debts.
If your life insurance proceeds are directed to someone else, the creditors aren’t owed anything from it. On the other hand, if you have your estate as the beneficiary for the policy, the creditors can absolutely come take it.
Not true. Whoever is the beneficiary on that policy, gets the money, and they can do whatever they want with it. If your ESTATE is the beneficiary, then the debts get paid first, before your heirs can inherit any of your estate.
Creditors will ask your next of kin if you have life insurance – but they cannot attach it. They can only sue your estate for any money your estate has.
Creditors have no way of telling if you have any life insurance. Should you die and benefit gets paid to the beneficiary they will not have to pay tour debt, or any outstanding funds. It also is tax free!
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No. The life insurance benefit is paid directly to the named beneficiary(ies) on the policy. It does not go to creditors.