Minnesota Life Insurance License Practice Exam

If an insured was in debt at the time of their death, to whom will the life insurance proceeds be paid?

1. The deceased's estate

2. The beneficiary on record with the insurer

3. The creditors of the insured

4. The insured's dependents

The correct answer is: The beneficiary on record with the insurer

The life insurance proceeds will typically be paid to the beneficiary on record with the insurer. This is because life insurance policies are structured to ensure that the designated beneficiary receives the death benefit directly, regardless of the insured's debts at the time of death. Once the insured passes away, the insurer pays the stated amount of the policy to the beneficiary unless the beneficiary is the estate of the insured, which can occur if no beneficiary is named or if the named beneficiary is not living. However, when a beneficiary is designated and is alive at the time of the insured's death, those proceeds are directed to them first before other claims can be made. While the proceeds could theoretically be reached by creditors of the deceased if the benefits go into the estate, the primary intent of life insurance is to provide immediate financial support to the beneficiaries named in the policy, creating a clear pathway for funds directly to them rather than allowing creditors to claim those funds first.