Life insurance is not normally an estate asset

Life insurance is usually a contract between the insurance company and the policy owner (holder) that requires the insurer to pay an amount to the beneficiary (a third party) on the death of a person (who may or may not have been the policy owner).

As a result, usually life insurance proceeds flow directly to the beneficiary of the policy and do not flow through the estate of the deceased. Accordingly, as a general rule the estate trustee, in their capacity as estate trustee, is a ‘stranger’ to the insurance contract, and has neither no responsibility or authority to deal with the insurer. It is up to the beneficiary of the policy to deal with the insurance company.

A related point is that generally the estate trustee has no authority to make any changes to a life insurance policy after the death of the deceased; only the policy owner may make any changes, and only prior to the death of the insured. On the death of the insured, the contractual obligation of the insurer to pay in accordance with the policy crystalizes and cannot be altered or revoked.

From time to time the insurance company may refuse to pay a beneficiary. These claims may be legitimate (if, on the terms of the insurance contract, payment is not required), or, may be illegitimate. If so, the beneficiary must pursue their claim – sometimes to the point of taking the insurance company to court – to enforce the contract.