Beneficiaries✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
Which is a consequence of naming the insured's estate as the beneficiary of a life insurance policy?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Naming the estate as beneficiary causes the death proceeds to be paid to the estate, where they become probate assets. The funds are then subject to the claims of the insured's creditors, administration expenses, and the delays and costs of probate. The proceeds also lose the direct-beneficiary creditor protection that a named individual beneficiary would enjoy. Insurance professionals generally recommend naming a specific person or trust instead of the estate so the proceeds avoid probate and are distributed according to the insured's wishes without court administration.
Why the other options are wrong
- B) Proceeds remain income-tax-free under IRC Section 101 even when paid to an estate, but creditor claims, probate costs, and estate taxes can still apply.
- C) Direct payment to heirs without court involvement is the advantage of a named beneficiary, which the estate designation forfeits by making the proceeds probate assets.
- D) The probate estate itself can receive the proceeds. No trust structure is required for an estate to be a valid beneficiary.
Memory hook
Estate beneficiary equals probate, creditors, and court costs at the door.