Arizona Life and Health Practice Exam

When a life insurance policy has a named beneficiary, what happens to the death benefits?

1. They go to the estate of the insured

2. They are paid directly to the beneficiary without interference from creditors

3. They are split among all heirs

4. They are held in trust until the debts are settled

The correct answer is: They are paid directly to the beneficiary without interference from creditors

When a life insurance policy has a named beneficiary, the death benefits are paid directly to that designated individual or entity. This ensures that the beneficiary receives the funds without the potential delay or complications that could arise if the benefits were to go through the estate of the deceased. One of the key advantages of having a named beneficiary is that these funds are typically protected from the deceased's creditors, which means that the beneficiary can access the death benefit without it being subject to claims from the insured's outstanding debts. This direct payment process helps in providing financial support to the beneficiary promptly and efficiently at a time when they may need it most after the loss. In contrast, if there were no named beneficiary and the death benefits were directed to the estate, the funds could then be subject to probate, potentially split among heirs according to the will or state laws, or be held in trust until debts are resolved, which complicates matters for those expecting the benefits.