Life Insurance Death Benefits & Probate

The two most common types of life insurance are term life insurance and whole life insurance. Term life insurance is where an owner purchases a policy for an insured and when the insured passes away a stated beneficiary received a sum of money (i.e., the death benefit). The death benefit is usually intended to help address any outstanding costs and other expenses relating to the decedent. Whole life insurance, on the other hand, has an investment component with a larger premium. You still receive a death benefit, but the premiums are designed to provide a cash return.
For probate purposes, life insurance death benefits pass automatically to the named beneficiary. The beneficiary simply needs to comply with the life insurance policy’s requirements (e.g., submit proof of identification, forward copies of the death certificate, etc.) Several beneficiaries are often included in a life insurance form, sometimes taking jointly or contingently.
But what happens when an insured passes away and there are no living beneficiaries? The answer should be addressed in the life insurance policy. Life insurance policies are contracts and the typical rules regarding contract construction apply. More often than not, however, if no beneficiaries are alive, then the death benefit is made payable to the insured’s estate. Therefore, in Missouri, a small estate, “typical” estate using letters testamentary or letters of administration, or determination of heirship must be filed to claim the funds. Obviously, this is often the exact opposite of the intended outcome in that the courts are implicated.
Life insurance death benefits can be very large — in the hundreds of thousands to the millions — in some circumstances. Accordingly, it is key to stay on top of the situation and make sure that the insurance company has correct and up to date beneficiary designations.