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How to Inherit Life Insurance in Texas

Inheriting life insurance can provide financial security for loved ones in Texas, but it’s important to understand the legal requirements and processes involved.

From designating a beneficiary to filing a claim and receiving the death benefit, there are certain rules and regulations to follow.

Life insurance inheritance in Texas, including the death benefit, beneficiary rules, filing a claim, tax implications, and contesting a payout all have to be considered.

What is Life Insurance?

Life insurance is a contract between an individual and an insurance company.

The individual pays a premium to the insurance company, and in exchange, the insurance company agrees to pay out a sum of money to the individual’s designated beneficiaries upon their death. This payment is known as the death benefit.

Life insurance can provide financial protection for loved ones in the event of the policyholder’s death, helping to cover expenses such as funeral costs, living expenses, and debt repayment.

There are several types of life insurance policies available, including term life insurance, whole life insurance, and universal life insurance:

  • Term life insurance policies provide coverage for a specific term, usually 10, 20, or 30 years. These policies have a death benefit that is paid out if the policyholder dies during the term of the policy. The death benefit is typically a fixed amount that is specified in the policy.
  • Whole life insurance policies provide coverage for the policyholder’s entire life, as long as the policy premiums are paid. These policies typically have a death benefit that is guaranteed to remain the same throughout the policyholder’s life. The death benefit may be higher than the amount of the premiums paid, as the policy may accumulate a cash value over time.
  • Universal life insurance policies are a type of permanent life insurance that offers more flexibility than whole life insurance. These policies have a death benefit that is guaranteed, but the premiums and death benefit can be adjusted throughout the life of the policy. The policyholder may be able to increase the death benefit by paying higher premiums, or reduce the death benefit by reducing the premiums.

The Death Benefit

The death benefit is a crucial component of a life insurance policy, and it is important to understand how it works.

When a person dies who has a life insurance policy, the beneficiaries named in the policy will receive the death benefit from the insurance company. This is the amount of money paid out by the insurance company to the beneficiaries when the insured person dies.

The death benefit is typically a tax-free lump sum payment, which can be used for any purpose, such as funeral expenses, living expenses, or other debts. Beneficiaries can use the death benefit in any way they see fit, as there are no restrictions on how the money is spent.

Who is the Life Insurance Beneficiary?

The life insurance beneficiary is the person(s) who will receive the death benefit when the policyholder passes away. This is why it’s crucial to name the right beneficiary, as it can ensure that the money is used for the intended purpose.

It’s important to note that a beneficiary can be an individual or an entity, such as a charity or a trust. In some cases, the policyholder may want to name multiple beneficiaries to receive a portion of the death benefit. For instance, a policyholder may want to split the death benefit between their spouse and their children.

When selecting a beneficiary, it’s important to consider their financial situation and whether they have the capacity to manage the funds responsibly. For example, a policyholder may want to consider naming a trust as the beneficiary if they want to ensure that the money is used for a specific purpose, such as funding their child’s education.

In cases where the policyholder has minor children, it may be advisable to name a guardian or trustee to manage the funds on behalf of the children until they are of legal age to receive the funds themselves.

Life Insurance Beneficiary Rules

In Texas, certain rules apply to life insurance beneficiaries, including who is automatically designated as the primary beneficiary.

By default, if a policyholder has a spouse, they will be designated as the primary beneficiary of the policy, unless the policyholder specifically designates someone else in writing. This means that if the policyholder dies, the spouse will receive the death benefit from the insurance policy. If the policyholder does not have a spouse, they can choose any person or entity to be the primary beneficiary.

Additionally, if a policyholder has minor children, they will be automatically included as beneficiaries unless the policyholder specifies otherwise. This ensures that any life insurance proceeds will be used to provide for the children’s welfare after the policyholder’s death.

It’s important to note that beneficiaries can be changed at any time by the policyholder. This means that if a policyholder’s circumstances change, they can update their policy and choose a new beneficiary. This could include naming a new spouse, adding a child or changing the distribution of funds to their existing beneficiaries.

When choosing a beneficiary, it’s important to select someone who can manage the funds responsibly and use the money in the best interest of the beneficiaries. The policyholder should also keep in mind that they can name multiple beneficiaries and designate how much each should receive.

Filing a Claim for Life Insurance

The process for filing a claim is relatively straightforward and can be done online or over the phone with the insurance company.

To begin the process, the beneficiary will need to gather some basic information about the deceased individual and the policy. This information typically includes the full name and date of birth of the insured, the policy number, and the name and contact information for the insurance company. Additionally, the beneficiary will need to provide a copy of the policyholder’s death certificate.

Once this information is gathered, the beneficiary can begin the claims process by contacting the insurance company. Typically, the insurance company will ask for the above information as well as the beneficiary’s contact information and social security number.

After the claim is processed, the insurance company will issue a check made out to the beneficiary for the policy benefits. In some cases, there may be additional paperwork required before benefits are paid out. The insurance company may also ask for more information or documentation related to the claim before paying out the death benefit.

It’s important for beneficiaries to keep in mind that the claims process can take some time, especially if additional documentation or information is needed. However, the insurance company is legally required to pay out the death benefit as stated in the policy, and beneficiaries are entitled to receive the money they are owed.

Life Insurance Payout

When a life insurance policy payout is made, it is typically paid in one lump sum to the named beneficiary or beneficiaries. This is the person or persons named by the policyholder to receive the death benefit when they pass away. If there is no named beneficiary, or if the named beneficiary has predeceased the policyholder, the payout will be made to the policyholder’s estate.

It’s important to note that life insurance payouts are generally not subject to probate in Texas. Probate is the legal process by which a deceased person’s assets are distributed to their heirs or beneficiaries. Because life insurance policies have named beneficiaries, the death benefit is paid directly to those beneficiaries outside of the probate process. This means that the payout will not be distributed according to the policyholder’s will or trust.

In some cases, a life insurance policy may provide for payments to be made over time rather than in one lump sum. This is known as an annuity. With an annuity, the insurance company will make regular payments to the beneficiary over a specified period of time. The amount of the payments and the length of the payout period will be determined by the terms of the policy.

Tax Implications of Life Insurance Payouts

In most cases, life insurance payouts are not taxable in Texas. This means that beneficiaries do not have to pay state or federal income tax on the proceeds they receive. However, there are some situations in which life insurance payouts may be subject to taxes.

For example, if the policyholder owned the policy and transferred ownership to someone else within three years of their death, the proceeds may be considered part of their estate for tax purposes. Additionally, if the payout is made in installments or as an annuity, some or all of the payments may be taxable.

If you are unsure about the tax implications of a life insurance payout, it’s a good idea to consult with a tax professional who can help you understand your options.

Life Insurance and Medicaid

If the deceased person was receiving Medicaid benefits at the time of their death, the life insurance payout may affect their eligibility for benefits. In Texas, life insurance payouts are considered part of a person’s countable assets, which means they may impact their Medicaid eligibility.

However, there are some exceptions to this rule. For example, if the beneficiary of the life insurance policy is the deceased person’s spouse, the payout may not be considered a countable asset. Additionally, if the beneficiary is a special needs trust or a pooled trust, the payout may not affect the person’s eligibility for Medicaid.

If you are receiving Medicaid benefits or are the beneficiary of a life insurance policy owned by someone who was receiving Medicaid, it’s important to speak with an attorney who can help you understand how the payout may affect your eligibility for benefits.

Contesting a Life Insurance Payout

Contesting a life insurance payout can be a complex and challenging process. Generally, only someone who has a legal right to the proceeds can contest a payout. This includes named beneficiaries, the estate of the deceased policyholder, or someone who can prove that they were designated as a beneficiary but were not listed on the policy.

Common reasons for contesting a life insurance payout include disputes over the validity of the policy, questions about the policyholder’s cause of death, or disagreements about who should receive the proceeds.

If you believe you are entitled to a life insurance payout and the insurance company has refused to pay, the first step is to review the policy and any applicable state laws to determine your legal rights. If you believe you have a legitimate claim, you may need to file a lawsuit against the insurance company to contest the payout.


Inheriting life insurance in Texas is a relatively simple process, as long as you have the right documents in order. You’ll need to provide the life insurance company with a copy of the death certificate and proof of your relationship to the deceased, and then they will release the policy proceeds to you. If you have any questions about the process, or if you need help getting started, contact a life insurance agent today.

Do You Need an Experienced Probate Attorney to Help?

An experienced probate attorney can help you navigate the process of inheriting life insurance in Texas. They can help you understand the requirements of the probate process, and can represent you in court if necessary. They can also help you to identify and contact any beneficiaries of the policy, and to determine how the proceeds should be distributed. If you are named as a beneficiary in a life insurance policy, it is important to consult with an experienced probate attorney to ensure that you receive your inheritance as intended.

Our Houston Probate Attorneys provide a full range of probate services to our clients, including helping with disputes between heirs. Affordable rates, fixed fees, and payment plans are available. We provide step-by-step instructions, guidance, checklists, and more for completing the probate process. We have years of combined experience we can use to support and guide you with probate and estate matters. Call us today for a FREE attorney consultation.


The content of this website is for informational purposes only and should not be construed as legal advice. The information presented may not apply to your situation and should not be acted upon without consulting a qualified probate attorney. We encourage you to seek the advice of a competent attorney with any legal questions you may have.

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