Must life insurance be used to pay deceased's bills?

orangecatMay 6, 2006

When a person dies with no assets (no house, no savings, etc.) but with an enormous amount of medical bills, what happens to the life insurance? (Assuming the amount of life insurance is small and nowhere near enough to even make a dent in the medical bills). Are the person's children (assuming there is no surviving spouse) required to use the life insurance proceeds to pay off bills (that were in the parent's name only)? Are they in any way responsible for the debts? Or can the life insurance be used for funeral expenses?

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See an attorney for a quick consult (probably free) and you will be sure, but where I live, the life insurance belongs to the beneficiaries and is not part of the estate of the deceased. The insurance money won't come into their hands fast enough to pay the funeral expences, but they may use it to pay that bill if the funeral expences are charged.

I am sorry for your loss. One other improtant thing is to get lots of official copies of the death certificate from the funeral home. Each of the companies the deceased owes money to will want a copy of the death certificate. If no one else was on these accounts and there were no assets, there is nothing to pay the bills with. A letter and a copy of the death certificate will end these bills.

Remember to not pay toward these bills with your own money and don't say that you will pay them when the insurance comes in. Doing so can make you liable to pay all of the bill. Just tell them that the person is deceased and that there was no estate to probate.

    Bookmark   May 6, 2006 at 2:29PM
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Hi orangecat,

I am sorry that you've lost your loved one. That really hurts.

And - how much more stressful it is when there are a bunch of money problems to deal with all at the same time.

As for the (modest) insurance policy.

Who is the named beneficiary of the policy?

In almost all cases that person gets the proceeds of the insurance.

If the designated beneficiary has died, quite likely the proceeds of the insurance will go to pay outstanding bills of that person's estate, or to one or other of his/her beneficiaries.

It's important to find out whether the person dying has made arrangements for the funeral. Has s/he planned to donate organs to persons needing them? Or his/her body to a medical school?

If arrangements haven't been made, it's the responsibility of the executor named in the will to make those arrangements and see to their implementation.

Almost certainly the funeral home will want assurance of how they are to be paid before they'll agree to officiate.

Do you have a Memorial Society in your area (look in the Yellow Pages, likely under Funeral Directors/Homes)? Or ask a local church, especially one (or a few) in a low-income area. They offer modest funeral services at a much reduced price.

If the beneficiary of the insurance policy is a good-hearted person, perhaps s/he will allow at least part of the benefit to be used to pay for part of the funeral.

If so, does that person or the deceased have a fairly strong connection with a religious congregation? If so, perhaps the congregation's ruling body would be willing to pass a contributon through to the funeral home. If so, when the beneficiary of the deceased's insurance makes the contribution to the church, s/he'll get a receipt, which in most jurisdictions is mostly tax-deductible. The congregation would agree to pass that money on to the funeral director concerned. That would mean that the donation would be tax-deductible rather than just a gift with no compensating material benefit to the donor.

If you can't afford a funeral, most municipal governments can make arrangements to provide one.

Does the deceased person have a will? One of the major provisions is to name an executor, whose responsibility it will be to collect whatever assets there may be, pay whatever bills s/he can, including income tax, of course, and if there are assets left, to distribute them according to the provisions of the will.

The latter not a big problem in your situation, as you say.

Most of us need one, but if there are no assets it isn't so necessary.

Is there likely to be argument over the person's furniture, car, personal assets?

If the person is still alive, it's important the s/he make a will. If there isn't one, dealing with the estate is delayed, gets quite complicated - and expensive, if there are assets.

It would be helpful if they can let several persons (to forestall arguments later) close to him/her know whom s/he'd like to have which of her/his possessions - if it wouldn't be too traumatic to raise such a subject now/soon.

Make a list - and have several persons have a copy (or know about the specific provisions, at least), if you anticipate having arguments.

WHile these suggestions are generally true in many jurisdictions, I'd suggest that you check some people locally who are knowlesgeable in this area. Often religious congregations' leaders have some experience in it.

My good wishes go out to you and your family through this trying time.

ole joyful

    Bookmark   May 6, 2006 at 9:35PM
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If one (or more) of the children is listed as beneficiary of the life insurance policy, then it is not part of the estate and may used as the beneficiary wishes.

It is up to the beneficiary(ies) to decide if they wish to use it to pay for funeral expenses. The life insurance usually does not come through quick enough to cover the funeral costs (as the funeral home wants complete payment at the time you make funeral arrangements).

Get a number of copies of the death certificate from the funeral home as you will need to supply these to the various doctors, hospitals, utilities, credit card companies, etc. Once they have a death certificate and know there is no estate they will generally stop any attempts of collection. You are not personally responsible for these debts. Only if the deceased had an estate would there be an expectation of payment from the estate.

    Bookmark   May 8, 2006 at 7:25PM
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