Must life insurance proceeds be used to pay the debts of the deceased?

My mom passed with her house on a reverse mortgage, we are surrendering the house to the bank. She left many credit card and medical bills. We collected her life insurance policy. Are we obligated to use that money to pay her bills or is it intended for the beneficiaries? Her few possessions in the house are worth less than $1000. Her car is over 20 years old and has little value. I want to sign the car over to my brother so he has something to drive.

Asked on November 6, 2014 under Estate Planning, California


M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 6 years ago | Contributor

I am so sorry for your loss.  If the life insurance policy had designated beneficiaries - you and your siblings - then it passed to you automatically at the time of her death and no, you do not have to use it to pay off debt.  If it did not have a designated beneficiary then it went in to the estate and then it would have to be used.  Good luck.

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