Are beneficiaries on life insurance police responsible for deceased debt?

Answer 1

Absolutely not.

Just because one receives the benefits of a life insurance policy does not make them responsible for the debts of the one that has passed away. The person receives the benefit tax free to spend how they see fit.

That said, whole life policies accumulate cash value. This is essentially a savings account within the policy. The insured, prior to death, can borrow some or all of the cash value by means of a policy loan. If it is not repaid, the death benefit payable to the beneficiary would be reduced by the outstanding amount of the loan plus the contract rate of interest. This is technically different from the beneficiary being responsible for the general debts of the deceased, but the outstanding policy loan would reduce the amount payable to the beneficiary. Therefore, indirectly, the beneficiary is bearing responsibility for this debt.

The lack of responsibility for the deceased's debts is the same if term insurance is involved. Term insurance does not accumulate cash value, so no policy loans can be made. However, a life insurance policy can sometimes be used as collateral for a loan. If the insured dies before the loan is paid, the creditor may make a claim to the policy proceeds, which may or may not be given preference over the claim of the named beneficiary.