Does Insurance have to go through Probate?

We get asked about probate and non-probate assets all the time. It depends on many different things, but in this blog, we are going to talk about annuities and insurance products. What is life insurance? Life insurance is a type...

We get asked about probate and non-probate assets all the time. It depends on many different things, but in this blog, we are going to talk about annuities and insurance products.

What is life insurance?

Life insurance is a type of insurance that is designed to replace a portion or all of a person’s expected lifetime income in the event of the death of the person.

Life insurance policies come in two basic forms: term and whole.

What is term life insurance?

Term life insurance is sold for a specific period of time, usually one to five years, but can go for 20-30 years. It is often used to cover one’s mortgage, household expenses, and other major expenses.

What is whole life insurance?

Whole life insurance lasts for a person’s entire life. It also has cash value, which means it can be cashed out before death.

What is an Annuity?

Annuities are a type of insurance contract that pays out a stream of income for a set period of time. Annuities can be purchased through companies that sell annuities, such as insurance agents and licensed insurance producers, or they can be purchased directly from an insurance company.

Because an annuity is a contract, the specific questions for the annuity will depend on exactly how the contract is written.

What are the different ways a person is on a life insurance policy?

There are 3 basic ways a person can be on a life insurance policy: the insured, the beneficiary, and the owner.

What is the insured? The insured is the person who the life insurance covers. If that person dies, then the insurance pays the death benefit.

What is the beneficiary? The person(s), trust, or whoever receives the death benefit is the beneficiary of the life insurance.

Who is the owner? The owner of the insurance policy is a person who has the right to change the policy or cash it out.

What are the different ways a person is on an annuity contract?

There are also 3 basic ways a person can be on an annuity contract: the owner of the annuity, the annuitant, and the beneficiary.

Who is the owner? The owner is the person who buys the annuity.

What is the annuitant? The annuitant is the person whose life expectancy is used to determine the payout of the annuity.

What is the beneficiary? The beneficiary is who will receive the death benefit (if there is any) when the annuitant dies.

Are Insurance Contracts Part of the Probate Estate?

This answer goes like all answers from lawyers and is one reason people do not like them: It depends. It depends on the exact language of the contract and if it has a beneficiary.

Are Life Insurance Proceeds part of an Estate?

The answer is maybe or maybe not. Here are some scenarios below:

If there is a designated beneficiary and they are still alive, then no. The life insurance policy will not be part of the estate.

If there is a designated beneficiary and they are deceased and there is a contingent beneficiary, then no. The life insurance policy will not be part of the estate.

If the primary beneficiary dies and there is NOT a contingent beneficiary, then maybe. It will depend on the language of the insurance company contract. Most will say the insurance proceeds should be given to the estate, some will say it should go to the closest relative.

If there is no intended beneficiary on the life insurance policy, then the insurance policy will be part of the estate and subject to the Arkansas probate process.

This whole section assumes there is a death benefit. People sometimes take loans out against the life insurance policy and the account value may be much less than the death benefit.

Are annuities part of an estate?

Once again, it is the answer no person likes: It depends on the insurance policy and how it is filled out.

You can review the answers in the life insurance section above. The main difference is not all annuities have a death benefit.

Depending on the annuity company, the beneficiary’s life expectancy, and the original annuity contract, there may or may not be a death benefit. Some annuities guarantee a certain payout, and some are deferred annuities.

How to Claim the Death Benefit from the Insurance Company?

Typically, you have to contact the company that has the life insurance policy. You will need to provide them with a death certificate and request the policy be paid out in a lump sum distribution. If it all works out, you could have the lump sum in your bank account in a matter of weeks.

How do I know if there was a life insurance policy or annuity?

The short answer is you don’t. You may need to contact their financial advisor or any financial institution where they had accounts.

Many times, we subpoena bank account records and look for income payments from a retirement account or expenses to a life insurance company to determine where to request records.

If you are facing a probate problem in Arkansas and you want a free strategy session, feel free to contact us and schedule one at your convenience.

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