Advanced Underwriting Consultants

Question of the Day – March 30

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: My client died leaving her $200,000 death benefit life policy payable to her spouse.  However, the spouse died prior to the client.  To whom are the death proceeds payable?  Are they taxable?

Answer: If the named beneficiary of a life policy pre-deceases the insured, the death benefit is generally payable to the named contingent beneficiary.  If there is no named contingent beneficiary, most life insurance companies direct the proceeds to the insured’s estate.


If a life policy has a named beneficiary, the proceeds are passed directly, without the need for probate.

If the estate is the beneficiary, the access of the heirs to any money associated with the financial product is delayed because the money must go through probate.  With probate, in some cases, the delay can be a year or more.  Any asset forced through the probate process becomes part of the public record, so privacy is lost.  Finally, and perhaps most importantly, in most jurisdictions the money becomes subject to the claims of creditors of the decedent’s estate.

Life insurance death proceeds payable to the insured’s estate are usually still income tax free.  They are also included in the insured’s taxable estate for federal estate tax purposes.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.