Life insurance proceeds go to a designated beneficiary by the policyholder. It can certainly be used to reduce or eliminate debt but unless very specific circumstances are in place through a will or trust, the beneficiary controls the proceeds. There are policies such as final expense plans that can be designated to pay for a funeral, but not traditional life insurance.
Life insurance does not go to the debt of the person who died, unless the life insurance proceeds go to his/her estate. If the money goes to the estate, debt collectors will collect from it.
Another way life insurance might go to pay off debt incurred by the Insured, is if the beneficiary was a co-signer for the Insured's debt (in community property states, a spouse may need to pay off the debt even if their name was not on the contract). If not a co-signer (or not the surviving spouse in a community property state), the beneficiary does not need to pay off the debt of the Insured, unless they want to.
If it is the beneficiary who has debts and receives a life insurance death benefit, each state has their own limitations on whether or not debt collectors can come after your life insurance proceeds. This website tells about the debt collection laws from some states: http://www.nolo.com/legal-encyclopedia/state-fair-debt-collection-laws
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Another way life insurance might go to pay off debt incurred by the Insured, is if the beneficiary was a co-signer for the Insured's debt (in community property states, a spouse may need to pay off the debt even if their name was not on the contract). If not a co-signer (or not the surviving spouse in a community property state), the beneficiary does not need to pay off the debt of the Insured, unless they want to.
If it is the beneficiary who has debts and receives a life insurance death benefit, each state has their own limitations on whether or not debt collectors can come after your life insurance proceeds. This website tells about the debt collection laws from some states: http://www.nolo.com/legal-encyclopedia/state-fair-debt-collection-laws