Good morning. I will assist you in answering your questions:
Is the benefit now part of his Estate?
Yes. If the money is still with the insurance company and hasn't been paid over to the State as abandoned property, they should send a check either payable to him, or payable to his estate if they have proof of his passing.
If so - is it in Probate our outside Probate?
It is part of his probate estate, but depending on the amount, you might be able to get it paid out directly to the heirs under the Washington Small Estates affidavit. See:
Does Washington State require the insurance company to put the benefit in an interest bearing account (similar to New York)?
Yes. It may be as much as 8% or even 11%. See Washington Revised Code 48.23.300 http://apps.leg.wa.gov/rcw/default.aspx?cite=48.23.300
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