Detailed Answer

Short answer: In Arizona, if a life insurance policy has no valid named beneficiary when the insured dies, the proceeds typically become part of the decedent’s probate estate and can be reached by estate creditors unless you use a nonprobate arrangement (for example, name a living beneficiary or place the policy in an irrevocable life insurance trust before death). The safest ways to protect proceeds are proactive: keep beneficiary designations current, use properly drafted beneficiary designations or trusts, and follow Arizona probate and insurance rules closely.

How Arizona law treats life insurance with no beneficiary

When a policy lacks a valid living beneficiary at the time of death (no beneficiary named, the named beneficiary predeceased the insured without a contingent beneficiary, or the beneficiary designation is otherwise invalid), the insurer typically pays the proceeds to the insured’s estate. Once proceeds become estate property they are subject to the probate process and to creditor claims that are allowed under Arizona probate law. For general information about Arizona probate law and creditor claims, see Arizona Revised Statutes, Title 14 (Probate): https://www.azleg.gov/arsDetail/?title=14.

Why estate treatment matters for creditor claims

Proceeds paid to the estate typically form part of the assets the personal representative must use to pay valid creditor claims during probate. Arizona’s probate process requires notice to creditors and gives them a window to file claims; valid claims that survive the statutory review can reduce or eliminate funds available from proceeds that became part of the estate. For practical information on probate procedure in Arizona see the Arizona Judicial Branch probate self-help page: https://www.azcourts.gov/selfservice/Probate.

Common ways to protect life insurance proceeds (with pros and cons)

Name a living beneficiary. The simplest protection: name a primary (and one or more contingent) beneficiary who will receive proceeds directly. When an insurer has a valid beneficiary designation, proceeds normally pass outside probate and are not estate assets for creditor collection (with some exceptions). Keep beneficiary designations up to date after life events such as marriage, divorce, or birth.
Use an irrevocable life insurance trust (ILIT). An ILIT can own the policy or be named beneficiary. If properly drafted and funded well before death, the policy proceeds may not be included in the insured’s probate estate and are generally shielded from estate creditors. ILITs are technical: set-up and administration matters, and transfers shortly before death can raise estate inclusion issues.
Name a trust as beneficiary. Naming a revocable trust as beneficiary may keep proceeds outside probate if the trust is drafted and funded appropriately, but if it is the insured’s revocable trust and the insured retained control at death, estate inclusion can still occur. An irrevocable trust is stronger for creditor protection.
Designate payable-on-death (POD) or transfer-on-death (TOD) recipients where allowed. Some accounts and contracts allow POD/TOD designations that avoid probate. Life insurance relies primarily on beneficiary designations, so ensure the insurer’s forms reflect a valid nonprobate payee.
Beneficiary disclaimers. A beneficiary can disclaim (refuse) the proceeds, causing the proceeds to be payable to next beneficiary or to the estate. Disclaimers must comply with state law (Arizona follows the Uniform Disclaimer of Property Interests Act) and must be timely and written. A disclaimer can sometimes be used strategically but may trigger creditor issues if done to defeat creditors.
Ownership transfers. Transferring ownership of a policy to another person or to an irrevocable trust can remove proceeds from your estate, but transfers within a short period before death may still be reached for estate tax or creditor purposes and can create unintended consequences (including gift tax and Medicaid lookback concerns).

Key practical steps for executors/administrators when a policy goes to the estate

Identify all life insurance policies and contact insurers immediately.
Gather policy contracts and request the insurer’s forms and instructions for paying proceeds to an estate; insurers ordinarily require Letters Testamentary or Letters of Administration before they pay when the estate is the payee.
Open probate (if required) and follow Arizona rules for creditor notice and claims. See Arizona Revised Statutes, Title 14: https://www.azleg.gov/arsDetail/?title=14.
Object to invalid creditor claims and seek professional advice when creditors assert large claims against proceeds.
If potential protection techniques (trusts, disclaimers) might apply, consult a qualified attorney promptly—some moves must occur before distributions or before the statute of limitations for claims runs.

Arizona-specific considerations

Arizona law treats community property matters and beneficiary designations in light of marital property rules. For example, a spouse might have rights depending on how the policy was titled and whether premiums were paid with community funds.
The Arizona Department of Insurance provides consumer information on life insurance and beneficiary designations: https://insurance.az.gov/consumer/life-insurance.
Probate timelines and creditor notice procedures are governed by Arizona’s probate statutes (Title 14). Executors should review those statutes or consult counsel to meet procedural deadlines and preserve estate assets. Arizona Revised Statutes, Title 14 (Probate): https://www.azleg.gov/arsDetail/?title=14.

When to speak with an attorney

Talk to an attorney if the proceeds are large, if creditors have asserted claims, if the beneficiary designation is ambiguous or contested, or if you need to design an irrevocable trust or other estate planning tool to protect proceeds. An attorney can draft the correct trust language and advise on timing (for example, avoiding transfers too close to death that may not achieve protection).

Disclaimer: This article explains general principles under Arizona law but is not legal advice. It does not create an attorney-client relationship. For advice tailored to your situation, consult a licensed Arizona attorney.

Helpful Hints

Review beneficiary designations on every life insurance policy at least every 2–3 years and after major life events (marriage, divorce, birth, death).
Name both primary and contingent beneficiaries to avoid having proceeds pass to the estate if a primary beneficiary predeceases you.
Consider an irrevocable life insurance trust (ILIT) for larger policies where creditor protection or estate tax planning is important—but set it up well before your death.
Keep signed copies of beneficiary designation forms and proof of updates; the insurer follows the most recent form it has on file.
If you are an executor and proceeds are payable to the estate, act quickly to inventory assets, file for probate if necessary, and give required creditor notices under Arizona law.
Use the Arizona Department of Insurance and Arizona Courts probate self-help resources for consumer guidance: insurance.az.gov/consumer/life-insurance and azcourts.gov/selfservice/Probate.