Life insurance is personal property. Policy ownership or change in ownership dictates transfer of property, which may or may not have taxable consequences. This assumes that the policy owner is not the policy insured. In general terms, the death of a married policy owner with no other testament dictates would cause the policy to go into his or her estate and through the marital deduction pass on to the spouse, who could then have the policy ownership changed to their name. Always seek legal counsel when considering ownership changes in personal property.
If there is a contingent owner named on the policy, the life insurance policy ownership would pass to the contingent owner. If there is not a contingent owner, the policy would pass through the estate of the person who owned the policy. If the estate was already closed by the time the family found the policy, they can contact the insurer for advice on how to proceed.
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If the owner is the insured the policy is terminated and the proceeds are paid to the beneficiary.
If the owner is not the insured, the policyholder becomes the new owner and should transferring ownership to a successor.