Does life insurance pay for final expenses?

2 answers | Last updated: Nov 07, 2016
A fellow caregiver asked...

My nephew is the beneficiary of his grandmother's life insurance policy. Her will states from the beginning that all debts, funeral expenses and expenses from her illness to be paid first. Do those monies come from the beneficiaries amount as the will states that all debts are paid first? The will is from NJ.

Expert Answers

Steve Weisman hosts the nationally syndicated radio show A Touch of Grey, heard on more than 50 stations, including WABC in New York City and KRLA in Los Angeles. He is a practicing lawyer specializing in estate planning and is admitted to practice before the United States Supreme Court. He's a public speaker and commentator who has appeared on many radio and television shows throughout the country, and he's the legal editor of Talkers magazine, the preeminent trade publication of talk radio. His latest book is The Truth About Avoiding Scams.

If, as is the most common situation, your nephew is the designated beneficiary of his grandmother's life insurance policy, upon her death, he has a right to the full proceeds of the policy.  The only exception to this general rule would be if there were estate taxes due as a result of the grandmother's death, in which case, the proportionate amount of the estate tax that relates to the amount of the life insurance could be taken by the executor of the estate. 

However, if, as is less common, the beneficiary of the life insurance policy was designated as the estate of the grandmother and her Will indicates that your nephew shall receive the proceeds of the life insurance, the debts and expenses of the grandmother would need to be paid first from all of the assets of the estate including the life insurance proceeds before any amounts are distributed to the beneficiaries of the Will.

Community Answers

A fellow caregiver answered...

From my own experience, if the insurance policy names individuals as beneficiaries, they are under no obligation to use any portion of that money to pay for the funeral or anything else.  My mother-in-law had a small life insurance policy and had told me about it frequently.  I knew it was her intention that the policy would take care of her expenses but she didn't seek good legal advice and, when the time came, the insurance went to her two sons and the children of a third deceased son.  One of the sons, my husband, used his share to offset the costs of the funeral.  The others kept every penny of theirs and we paid the rest of the funeral bill out of our pockets.  Thank God, we had bought a pre-paid funeral insurance policy when her house was sold, so the remaining expenses were not too large.  When in doubt, seek legal advice from someone with expertise in the field.