Short answer

If a life insurance policy has no valid living beneficiary named, proceeds generally become part of the decedent’s probate estate in California and can be exposed to creditor claims during estate administration. To protect proceeds you can (before death) name a specific beneficiary, name a trust as beneficiary (often an irrevocable life insurance trust), or change ownership of the policy in ways that remove the policy from the insured’s probate estate. Each solution has trade-offs, timing issues, and legal pitfalls (including fraudulent-transfer risks), so plan ahead and get legal advice tailored to your situation.

Detailed answer — what happens when there is no beneficiary and how California law applies

Who the insurer pays is controlled primarily by the policy contract and the beneficiary designation. If a policy does not have a valid named beneficiary (for example, the beneficiary predeceased the insured and no contingent was named, or the policy simply lists no beneficiary), the insurer commonly pays the proceeds to the decedent’s estate. Once proceeds are paid to the estate (or the insurer lists the estate as payee), those funds typically enter probate and become available to creditors making timely claims against the estate under California probate procedures.

Probate in California is governed by the California Probate Code. Probate assets are administered by the personal representative, claims can be presented by creditors under the probate claim process, and valid claims are paid from probate assets, which can include life insurance proceeds paid to the estate. For a full view of the Probate Code, see the California Legislative Information site for the Probate Code: California Probate Code (leginfo.ca.gov).

There are some important exceptions and distinctions to keep in mind:

• Policies with a valid, living named beneficiary usually pay directly to the beneficiary and avoid probate entirely, so creditors of the decedent generally cannot reach those proceeds through probate (although certain creditors may still have other remedies depending on the facts).
• Group life insurance or ERISA-regulated plans (employer plans) are governed by federal ERISA rules and plan documents; benefits often pass directly to plan-designated beneficiaries and commonly avoid probate. ERISA can preempt state rules in many situations: see the U.S. Department of Labor on ERISA basics: DOL — ERISA basics.
• Transfers or changes made very shortly before death may be subject to challenge as fraudulent transfers or as reserved incidents of ownership; California law addresses fraudulent transfers under the Uniform Voidable Transactions Act (Cal. Civ. Code §3439 et seq.): Cal. Civ. Code §3439.

Because California procedure controls how probate assets are marshalled and how creditor claims are handled, the safest protection is proactive planning that places proceeds outside the probate estate in a way that is legally effective and not easily voidable.

Practical ways to protect life insurance proceeds (pros, cons, and California considerations)

1. Name a primary and contingent beneficiary (the simplest fix)

   Directly naming a living person (or entity) on the policy as beneficiary is the fastest way to keep proceeds out of probate. Also name contingent beneficiaries in case the primary predeceases the insured. Make sure beneficiary designations are current and match estate planning intent. Verify the insurer has current beneficiary forms on file.

2. Name a trust as beneficiary — commonly an ILIT (irrevocable life insurance trust)

   When a properly drafted irrevocable life insurance trust (ILIT) is named beneficiary and the insured does not retain incidents of ownership (ownership, ability to change beneficiary, or to borrow against the policy), the proceeds can avoid probate and may be protected from the insured’s creditors. For estate-tax inclusion concerns, transfers done shortly before death or where the insured retains control may still cause inclusion in the estate for federal tax or creditor claims.

   Pros: strong probate-avoidance, potential creditor protection, increased control over distribution. Cons: irrevocability, gift-tax/formalities issues, must be set up and funded correctly well before death.

3. Transfer ownership of the policy to another person or to a trust (with care)

   Changing the owner of the policy (not just the beneficiary) can move the policy out of the insured’s estate, but transfers may be challenged as fraudulent if done to hinder creditors. If you transfer ownership, you should:

   • Complete the transfer well before foreseeable claims;
   • Avoid retaining incidents of ownership after the transfer;
   • Document the transfer and consider obtaining legal counsel to reduce risk of later attack.
4. Keep beneficiary designations synchronized with estate documents

   Wills do not control life insurance proceeds when the policy names a beneficiary; conversely, leaving no beneficiary often routes proceeds to the estate under the insurer’s contract or state law. Confirm that beneficiary designations align with your will or trust plan to avoid unintended probate exposure.

5. Group policies and employer plans — review plan rules

   Group life plans are usually governed by ERISA and the plan’s beneficiary rules. Check the plan documents and beneficiary forms. ERISA plans generally pay directly to named beneficiaries and typically avoid probate, but plan-specific rules and creditor rules can vary.

6. Be aware of state exemptions and family protections

   California law includes certain protections for surviving spouses and minor children (family allowance, homestead allowance, exemptions), but these protections are limited and fact-specific. Some protections may shield certain funds or provide a short-term allowance during probate, but they are not a guaranteed way to keep large insurance proceeds out of creditor reach. See the California Probate Code for general rules: California Probate Code (leginfo.ca.gov).

7. Avoid last-minute transfers intended solely to defeat creditors

   Transfers made shortly before death with the intent to hinder, delay, or defraud creditors are vulnerable to challenge under California’s fraudulent transfer law. Courts can unwind transfers and include proceeds in the probate estate or otherwise permit creditors to reach assets. See Cal. Civ. Code §3439 and related case law: Cal. Civ. Code §3439.

Concrete steps to take now (checklist)

• Review every life insurance policy and verify the current beneficiary paperwork is on file with the insurer.
• Name primary and contingent beneficiaries (persons or a trust) clearly and update them after major life events (marriage, divorce, births, deaths).
• If creditor protection is important, consult an estate planning attorney about an irrevocable life insurance trust (ILIT) or other ownership/beneficiary structures that remove the policy from your probate estate.
• Avoid last-minute transfers made only to defeat creditors; document legitimate reasons for any transfer and allow time between transfer and potential claims.
• If the policy is employer-provided, read the plan’s rules and beneficiary forms and consider ERISA implications; contact the plan administrator for clarification.
• Keep copies of all beneficiary designations, trust documents, and insurance assignments in a secure place and tell your personal representative where to find them.

Helpful hints

• Do not assume a will controls life insurance proceeds—beneficiary designations usually prevail.
• Naming an irrevocable trust as beneficiary is a common protective move, but it must be done correctly to achieve creditor protection.
• Changing policy ownership or beneficiary shortly before death can trigger fraudulent-transfer claims and estate-inclusion rules.
• Group/ERISA policies behave differently than individually owned policies—get plan-specific guidance.
• Document the rationale for transfers and plan changes to reduce risk if actions are later questioned by creditors.
• Periodically review beneficiary designations; life changes often make old designations inconsistent with your goals.