Does life insurance supersede Will in the determination of beneficiary made by the insurance company?

If there was no named beneficiary, often the life insurance policy documents themselves note the order of payout on a policy under the contract (usually spouse, then children equally, then grandchildren), and if none of the policy document beneficiaries exist, then the policy usually gets paid to the decedent's estate (and thus, then divided according to a decedent's Will if they had one). A life insurance policy is a contract between the owner/decedent and the company and the company/contract documents will control over contrary provision in a Will, absent certain other possible exclusions from that.

No. If there had been a designated beneficiary identified for the life insurance policy, that payout would bypass probate and go directly to the designated beneficiaries. In your case, no beneficiary was designated, thus the money should have been issued to the estate of your mother-in-law. The will would then identify how her estate was to be divided. The children get 25% each.

Your children have a claim against the life insurance company and their father for paying out and receipt of the policy benefits not incompliance with the will. The law is that life insurance is paid out to the named beneficiary(s) regardless of ,or outside, of the terms of the will. If there is no will and no named beneficiary then it is paid to surviving children ( here your husband). If no named beneficiary and a will then it is paid to the decedent's probate estate to be distributed according to the will. So I suspect that husband did not tell the insurance company that there was a will.