Why bypassing probate for life insurance makes sense?

Hardly anyone buys a life insurance policy for his own self. A life insurance policy is mostly purchased to secure the lifestyle of the near and dear ones of the insured. The assured sum is paid out to the named beneficiary as death benefit from the policy, after the insured passes away. So in a way, a life insurance policy acts as a worthy investment which promises high returns in the future, and acts as a security tool for the beneficiary.

How are the death benefits paid?

One of the most notable features that make life insurance a worthy investment is that, the beneficiary can receive the death benefit directly. It is not considered a part of the deceased's estate. Thus, it doesn't undergo the probate process.

When the death benefit goes through probate?

The proceeds from a life insurance policy have to undergo the probate process, only when the insured fails to name a beneficiary in the policy. The sum assured from the policy is thereby considered as a part of the deceased's estate, and is distributed accordingly. It'll also be subjected to the probate fees that are applicable for the estate distribution of the insured.

How the proceeds are paid out after the insured dies without naming a beneficiary?

The life insurance company issues a check which is made payable to the probate court. The probate court deducts the attorney fees and other related charges from it, and then distributes the rest of the money according to the terms of the insured's will. In the absence of a will, the estate is distributed according to the state laws.

Can the name of the beneficiary be changed according to the will of the insured?

No, the name of the life insurance beneficiary can't be changed after the insured's death. The policy proceeds are directly rewarded to the individual or trust, which is named as the beneficiary of the life insurance policy. No matter what the will of the insured says, the named beneficiary will receive all of the policy benefits.

Why is it essential to name a beneficiary in the policy?

A life insurance policy should have a beneficiary mentioned in the documents. Even if it's not an individual or a close one of the insured, any trust or organization can be named as the beneficiary. This helps the beneficiary in many ways as mentioned below:

1. The total sum from the policy can be received within a short period of time, since the probate process is time consuming.
2. The amount doesn't get shared and the probate fees are also not deducted from it. Thus, the beneficiary usually receives more dollars from the policy if it doesn't undergo the probate process.

Life insurance policies are designed in such a way that immediate financial assistance can be provided to the beneficiary. Unnecessary delay and wastage of funds can be avoided, only if the insured is responsible enough to name a beneficiary, who will be entitled to receive the proceeds from the policy.