Q: Am I liable to creditors if I received my sister's life insurance policy
A: Probably not - the life insurance was paid to you pursuant to a contract your sister had with the life insurance company. However since the proceeds were never actually payable to your sister while she was alive and the policy I assume named you as her beneficiary, and did not say it was payble to her estate, neither your sister nor her estate came into any money that the creditor's can claim. Now the reason I say "maybe" is because any other property you took that your sister owned could be subject to the claims of her creditors. As a practical matter, very few creditors will want to go to the trouble of filing a probate to get at a deceased person's assets, so as long as you don't need to file a probate or a small estate affidavit to collect property in your sister's estate you will probably be fine. It would be a good idea to consult with an experienced probate lawyer to find out if there are any potential issues you need to be aware of.
A: If the life insurance was payable to you upon your sister's death, then you have no obligation to pay her creditors. If the life insurance was payable to your sister's estate upon her death, and you are a beneficiary of her estate, then the estate is obligated to pay your sister's creditors using the life insurance proceeds if necessary.
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