Updated 31 October 2026
Probate Problem #32: How Are Life Insurance Policies Handled in Probate?
Life insurance forms part of a deceased estate only where the payment belongs to the estate under the policy and applicable law. A valid direct beneficiary arrangement may keep the proceeds outside the estate. Insurance held through superannuation follows the fund’s death-benefit rules, so the will alone does not determine who receives it.
| Payment route |
Usual treatment |
What to check |
| Direct policy beneficiary |
Usually outside the insured’s estate. |
Effective nomination and policy terms. |
| Policy payable to estate |
Administered under the will or intestacy. |
Grant requirements and statutory protections. |
| Insurance through super |
Part of the super death benefit. |
Fund rules, nomination and eligible recipients. |
The NSW Supreme Court’s probate guidance confirms that the policy terms matter. Identify the payment route before including a payout in the estate accounts or promising it to beneficiaries.
What should you check in the insurance policy?
Check the policy owner, the person whose life is insured, the current beneficiary arrangements and any assignment or security over the policy. These roles may belong to different people. Confirm that cover existed at death and ask the insurer to explain who is entitled to claim under the actual policy terms.
A missing or deceased nominee does not always mean payment to the insured person’s estate, particularly if someone else owns the policy. Obtain the schedule, policy wording and nomination history. Life cover can also include terminal illness benefits; a payment made before death needs separate treatment.
Can a will override an insurance beneficiary nomination?
A will generally cannot redirect money that another person is entitled to receive directly under an insurance contract. It governs assets passing through the estate. Review the will and policy arrangements together, especially after separation, divorce, remarriage or a beneficiary’s death, rather than assuming one updated document changes every nomination.
Section 48A of the Insurance Contracts Act recognises rights of qualifying third-party beneficiaries and excludes relevant payments from the insured’s estate. Ask the insurer to confirm any nomination change has taken effect. Naming a new executor or beneficiary in a will does not itself amend the policy.
Payment outside the estate does not necessarily prevent a NSW family provision claim; the Court’s notional-estate powers may apply if statutory conditions are met.
Is probate always needed before the insurer pays?
Probate is not automatically required for every life insurance claim. The insurer’s requirements depend on the recipient, policy and circumstances. Where payment belongs to the estate, an executor may need probate or an administrator may need letters of administration, but some payments can be released without a grant where the relevant requirements are met.
The Supreme Court recommends asking asset holders about their requirements. A grant establishes authority to administer the estate; it is not a separate court petition to add each policy. Record estate entitlements accurately and obtain advice if a policy is discovered after a grant.
Can estate insurance proceeds be used to pay the deceased’s debts?
Do not assume insurance proceeds paid to the estate are available for all creditors. Section 205 of the Life Insurance Act protects qualifying money payable to an estate under a policy on the deceased’s life from their debts, subject to specified exceptions. Executors should obtain advice before using those funds to settle liabilities.
The exceptions include an express contractual provision, a charge securing a debt or an express testamentary direction applying that money. A general instruction to pay debts is insufficient. The protection is also subject to bankruptcy law. Funeral and administration expenses require separate assessment. Keep records identifying the proceeds and their permitted use, particularly if the estate may be insolvent.
How is life insurance inside superannuation different?
Insurance held through superannuation is generally paid to the fund trustee and dealt with as part of the member’s superannuation death benefit. The trustee applies the governing rules, legislation and any effective nomination. Payment may go directly to eligible recipients or to the legal personal representative for administration through the estate.
Eligible recipients commonly include a spouse, children of any age, financial dependants and people in an interdependency relationship. Eligibility and tax treatment are separate questions. Moneysmart explains the claim process. Total and permanent disability and income protection insurance cover different events and are not automatically additional death benefits.
How do binding and non-binding super nominations work?
An effective binding nomination requires the trustee to follow it within the applicable rules; a non-binding nomination records wishes but leaves the trustee discretion. Check the fund’s form, eligible recipients, signatures, witnessing and expiry requirements. Some nominations lapse, while others are non-lapsing, so a universal three-year rule is inaccurate.
The Law Society of NSW explains that regulation 6.17A nominations require signing before two witnesses aged at least eighteen who are not named nominees, with the required witness declaration. Those rules do not automatically apply to SMSFs. Check the applicable deed and delivery requirements, and retain confirmation from the fund.
What does Hill v Zuda show about super nominations?
Hill v Zuda Pty Ltd demonstrates why a superannuation nomination must be assessed under the rules applying to the particular fund. The High Court held that regulation 6.17A did not apply to self-managed superannuation funds. The decision does not mean every SMSF nomination is valid or that every nomination lasts indefinitely.
In Hill v Zuda Pty Ltd [2022] HCA 21, a daughter challenged a 2011 trust-deed amendment directing her father’s SMSF balance to his surviving de facto partner. He died in 2016. She relied on the regulation’s formalities and three-year limit. The High Court dismissed the appeal. This concerned superannuation death benefits, not an ordinary life-insurance claim; the deed and other legal requirements still mattered.
Is tax payable on life insurance or super death benefits?
Australia has no inheritance or estate tax, but that does not make every death-related payment tax-free. Ordinary personal life-cover lump sums and superannuation death benefits have different tax rules. For super, the recipient’s tax-dependant status, payment form and benefit components matter; paying through an estate does not automatically increase the tax.
An adult child may be eligible under super law without being a tax dependant. A super death-benefit lump sum to a tax dependant is generally tax-free; other recipients may pay tax on taxable components. Where the estate receives super, treatment reflects who benefits or is expected to benefit. Obtain the fund’s component statement and tax advice, including on any insurance-related untaxed element.
What happens when a beneficiary is under eighteen?
A child’s entitlement requires an appropriate arrangement for receiving and managing the money. Do not assume a parent automatically owns the payout or that a court must appoint a guardian in every case. The policy, fund rules and applicable law determine the available arrangements and what evidence or authority is required.
Ask the provider who can give a valid receipt and whether trusteeship or another arrangement is needed. A trust in the will does not automatically govern money paid directly outside the estate. Plan the management and release of a child’s funds before relying on a nomination.
Funeral insurance may pay outside the estate depending on the policy and beneficiary arrangements, but payment is not guaranteed to be immediate. It is insurance rather than savings, and premiums can exceed the eventual benefit. Check exclusions, waiting periods and what happens if premiums become unaffordable or the cover ends.
Moneysmart’s funeral insurance guidance explains these risks. Families should also check existing cover, savings or prepaid arrangements. NSW funeral guidance suggests asking the deceased’s bank whether funeral expenses can be paid from their account before probate. Keep invoices and confirm who is responsible for the funeral contract.
What should an executor do when making a claim?
Locate all relevant policies and super accounts, notify the providers and request their claim requirements in writing. Supply the documents establishing death, identity and authority, and keep a record of every submission. Separate estate claims from claims belonging directly to other beneficiaries, and avoid distributing anticipated proceeds before entitlement and tax obligations are settled.
- Obtain policy numbers, cover details and nomination records.
- Provide the death certificate and other evidence requested for the particular claim.
- Track outstanding documents, decisions and any objection deadline.
- Ask about hardship assistance where needed; an advance may reduce the final payout.
Moneysmart’s claims guidance explains the process. If an executor also claims personally, obtain advice about the potential conflict of interest.
How should you handle a disputed payout or outdated arrangements?
Act promptly if a claim is refused, delayed or proposed for payment to someone whose entitlement you dispute. Request reasons and follow the insurer’s or fund’s complaints process. Strict deadlines may apply, and a challenge to a super trustee’s decision is different from a probate dispute or family provision claim.
Separate 28-day objection and complaint periods can apply to super death-benefit distribution decisions. Seek advice when a notice arrives; do not wait for probate. Review policy ownership, nominations and the will after major life changes. Contact Christine Manolakos and CM Lawyers to coordinate estate planning with appropriate insurance and tax advice.
General information, not advice about your circumstances. Have an estates lawyer check the policy, nominations and estate arrangements, and obtain appropriate financial and tax advice before you act.
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