Table of Contents
- U.S. Map of Bankruptcy and Creditor Protection for Life Insurance
- Asset Protection
- How Do Life Insurance Exemptions Work Against Creditors?
- Life Insurance Exemptions in Bankruptcy
- Federal Exemptions
- Exemption of Life Insurance Death Benefits
- ILIT: Irrevocable Life Insurance Trust
- Survey of State Life Insurance Exemption Laws
- Tables Detailing Life Insurance Creditor Protection and Bankruptcy Protection By State
- Conclusion
U.S. Map of Bankruptcy and Creditor Protection for Life Insurance
Disclaimer: We believe the current map of creditor protections by state is accurate. However, this map is not legal advice and you should consult with an attorney in your state if you have any questions regarding the below information.
Cash value life insurance includes whole life and universal life insurance. Both are excellent ways to provide some safeguards against life’s uncertainties.
The many benefits of whole life insurance policies and universal life insurance extend far beyond just providing liquidity in the event of an untimely death.
Over time, a policyโs cash surrender value builds up, earning interest and serving as a versatile financial asset useful in retirement and estate planning.
And with guaranteed cash value growth rates, dividend paying whole life insurance provides portfolio stability and a hedge against market uncertainty.
Asset Protection
Just as importantly (and often overlooked), cash value life insurance policies also offer the benefit of protection against creditor claims, making whole life and universal life a great choice for asset protection.
In general, when a creditor obtains a judgment or when a debtor files bankruptcy, the debtorโs assets can be โattachedโ to satisfy debts.ย An attached asset is seized and liquidated, and the proceeds are applied to creditor claims.
However, every state has exemption laws identifying certain asset categories which are immune, or partially immune, from attachment.
The classic example is the โhomestead exemptionโ protecting a debtorโs primary residence, but the cash value and death benefits of life insurance policies are also exempt โ in whole or in part โ in nearly every state.
How Do Life Insurance Exemptions Work Against Creditors?
Exemption laws vary considerably between states and donโt apply to the IRS, but, in general, if a creditor obtains a judgment against a policyholder, the creditor cannot attach to a permanent life insurance policyโs cash value to satisfy the judgment up to the amount of the exemption.
It doesnโt matter if the judgment arises from a contract claim (like an unpaid loan) or a tort action (like negligence or premises liability), the cash value will survive attachment up to the amount of the exemption.
This makes whole life insurance assets a useful means of ensuring a level of financial protection, even when other assets are potentially exposed.
That is, you can safeguard your money through whole life insurance asset protection depending on your state.
Varies Among States
Asset protection allotted to life insurance policies vary by state. Some states offer complete exemptions for life insurance.ย So, the dollar amount the policy is worth is irrelevant – the entire cash value is exempt.
In other states, exemption amounts are capped, which means cash value is exempt up to the amount of the cap, but the excess is attachable.
Conditional
In the majority of states, life insurance exemption laws have one or more conditions in order for you to take advantage of the life insurance asset protection provided.
Commonly, the beneficiary of the policy must be a third party (i.e., someone other than the policyowner) for the cash value to be held as exempt.
Exclusions Exist
And there are exclusions to exemptions under certain circumstances.
For instance, if a court finds that life insurance was purchased for the purpose of defrauding creditors โ or if the claim asserted against the policyowner is a domestic support obligation – exemptions usually wonโt be available.
And if a policyโs cash value is pledged as collateral for a loan, it wonโt be exempt from the claims of that specific creditor.
Life Insurance Exemptions in Bankruptcy
When an individual files bankruptcy, the court appoints a trustee to take control over all of the bankruptcy debtorโs assets (the โbankruptcy estateโ).ย Then, the trustee attaches and liquidates assets to pay creditor claims.
When the bankruptcy case concludes, almost all debts are discharged, but the assets attached by the trustee are gone.
Exempt assets like cash value life insurance, though, are held outside of the bankruptcy estate and therefore not subject to attachment.
BK Protections Often Similar to Creditor Protections
In most states, the exemptions applicable to bankruptcy are the same as creditor exemptions, though a few use a different standard in bankruptcy cases.
A majority of states only allow bankruptcy debtors to use state exemptions, though twenty states โ including New York, Pennsylvania, and Texas – allow debtors to choose either state or federal exemptions (but not both).
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Federal Exemptions
Under the federal exemptions, whole life and universal life cash value can be held as exempt up to $15,000. See 11 U.S.C. 522
The variance between state exemption rules โ and the choice between federal and state exemptions – can make a significant difference in the amount of wealth that survives a bankruptcy case.
Florida does not allow debtors to choose the federal rules, but the unlimited exemptions for both life insurance and homesteads make Florida one of the most favorable forums for bankruptcy filers.
Connecticut, on the other hand, limits the cash-value exemption to $4,000 but allows filers to choose between state or federal exemptions, potentially allowing preservation of nearly $10,000 in additional cash value if federal exemptions are claimed.
Exemption of Life Insurance Death Benefits
Most states also allow exemption of life insurance policy proceeds.ย The exemption sometimes requires that proceeds be payable to a third-party beneficiary, but some states exempt death benefits even if payable to the insuredโs estate.
As with cash value, there can be conditions for exemption of policy proceeds.
In New York, for instance, policy proceeds cannot be attached by a beneficiaryโs creditors if the beneficiary is the insuredโs spouse.
Notably, life insurance proceeds paid to a third party automatically transfer at death and are therefore not included within an insured decedentโs estate.
As a result, third-party pay-outs are usually not subject to creditor estate claims but are sometimes subject to attachment by creditors of the beneficiary โ depending upon the applicable state law.
ILIT: Irrevocable Life Insurance Trust
Additional protections against creditors of both insured and beneficiary can be gained through an irrevocable life insurance trust (ILIT).
An ILIT owns a policy during the insuredโs life and then, upon death, a trustee administers the proceeds in accordance with directions provided by the grantor of the trust in the trustโs declaration.
Because an ILIT is irrevocable, policy benefits are not included in the insuredโs taxable estate for federal estate tax purposes.
Survey of State Life Insurance Exemption Laws
As mentioned above, there are substantial differences in the life insurance exemptions available throughout the fifty states.
A sizeable majority provide an unlimited exemption for a policyโs cash value, though most of those have one or more conditions.
The most common condition is that the policyโs beneficiary must not be the policyowner.
Florida offers one of the most generous exemption schemes, with an unlimited cash-value exemption for Florida residents regardless of beneficiary and full exemption of policy proceeds as long as the beneficiary is a third party.
Only New Hampshire and Washington do not provide some cash-value exemption for an insured policyowner, but both states permit filers to apply the federal exemption rules.
Tables Detailing Life Insurance Creditor Protection and Bankruptcy Protection By State
Disclaimer: We believe the current table of creditor protections by state is accurate. However, this table is not legal advice and you should consult with an attorney in your state if you have any questions regarding the below information.
| State | Exemption Amount (Cash Value) | Exemption Conditions | Exemption Same for BK and Creditors? | Exemption of Death Benefits |
|---|---|---|---|---|
| AL | Unlimited | Complete exemption if spouse and/or children named beneficiary of policy. Value of policy owned by insured's spouse is also protected. Ala. Code ยง6-10-8, ยง27-14-29(b). | Yes. | Creditors of insured / policy owner cannot attach if beneficiary of policy is not owner or insured individual. Al. Code ยง27-14-29. |
| AK | $500,000 | Exemption of accrued dividends and loan value exceeding $500,000. Amounts over $500,000 may be attached via court order. AK. Stat. 09.38.025(a). | Only certain state exemptions allowed in BK. Includes cash value exemption. | Beneficiary can exempt proceeds from claims of beneficiary creditors up to $473 per week if debtor is spouse or dependent of insured. AK. Stat. 09.38.30(e)(4). |
| AZ | Unlimited | Cash value exempt if named beneficiary of policy is spouse, close relative, or other dependent family member of insured for uninterrupted period of at least two years. A.R.S. ยง20-1131(D). | Yes. | Creditors of insured / policy owner cannot attach if beneficiary of policy is not owner or insured individual. A.R.S. ยง20-1131(A). Proceeds exempt from claims of beneficiary creditors up to $20,000 if beneficiary is insured's spouse or child. A.R.S. ยง33-1126(A)(1). |
| AR | Unlimited; $500 if attachment based on contractual claim. | Unlimited exemption set forth by statute restricted by Arkansas Constitution provisions limiting exemption available against contractual claims of creditors to $500. AR. Code 16-66-209; Fed. Sav. & Loan Ins. Co. v. Holt, 894 F.2d 1005 (8th Cir. 1990). | Yes. (Bankruptcy debtors may alternatively select federal exemptions). | Creditors of insured / policy owner cannot attach if beneficiary of policy is not owner or insured individual. AR. Code ยง23-79-131(a)(1). Proceeds exempt from claims of beneficiary creditors, except if creditor claim is based on contractual debt, in which case exemption limited to $500. AR. Code ยง16-66-209. |
| CA | $15,650 (may be doubled if debtor is married) | $15,650 exemption against execution pursued by judgment creditor applies to loan value of unmatured policy. Cal. Civ. Pro. ยง704.100(b). | Yes. | Beneficiary creditors cannot attach proceeds to extent necessary to provide for care of beneficiary or beneficiary's spouse and/or children. Cal. Civ. Pro. ยง704.100(c). |
| CO | $250,000 | Cash surrender value exempt if policy owned by debtor for at least four years. Does not include increases arising from "extraordinary" contributions during prior four years. Co. Stat. ยง13-54-102(l)(1)(A). | Yes. | Creditors of insured cannot attach if beneficiary of policy is not insured's estate. Co. Rev. Stat., ยง13-54-102. |
| CT | $4,000 | Cash value exemption if policy owned by debtor and policy insures debtor or individual upon whom debtor is dependent. Ct. Gen. Stat. ยง52-352b(s). | Yes. (Bankruptcy debtors may alternatively select federal exemptions). | Creditors of insured cannot attach if beneficiary of policy is not insured's estate. Ct. Gen. Stat. ยง38a-453(a). |
| DE | Unlimited | Complete exemption available for any assets or amounts held or payable to the debtor under any life insurance policy. Del. Code ยง10-4915. | Yes. | Proceeds exempt from claims of beneficiary creditors which existed as of time policy proceeds become available to beneficiary. Del. Code ยง18-2725. |
| DC | Unlimited | Complete exemption of any unmatured life insurance policy owned by debtor except policy intended to pay debts of debtor. D.C.A. ยง15-501 | Yes. (Bankruptcy debtors may alternatively select federal exemptions). | Creditors of insured / policy owner cannot attach if beneficiary has insurable interest and is not owner or insured individual. D.C.A. ยง31-4716. Proceeds exempt from claims of beneficiary creditors if dependent of insured and necessary for support. D.C.A. ยง15-501. |
| FL | Unlimited | Cash value of life insurance policy insuring Florida resident or citizen may not be attached by creditor of insured. Fla. Stat. ยง222.14 | Yes. | Creditors of insured Florida resident cannot attach if beneficiary of policy is not insured or insured's estate. Fla. Stat. ยง222.13. |
| GA | Unlimited | Cash value of life insurance policy insuring Georgia resident or citizen may not be attached by creditor of insured. O.C.G.A. ยง33-25-11(c). | Generally, yes. But cash value exemption in bankruptcy capped at $2,000. O.C.G.A. ยง44-13-100(a)(9) | Creditors of insured Georgia resident cannot attach if beneficiary of policy is not insured or insured's estate. O.C.G.A. ยง33-25-11(a). |
| HW | Unlimited | Complete exemption of cash value if beneficiary is insured's spouse, child, parent, or dependent. Haw. Rev. Stat. ยง431:10-232. | Yes. (Bankruptcy debtors may alternatively select federal exemptions) | Creditors of insured cannot attach death benefits. Haw. Rev. Stat. ยง431:10-232. |
| ID | Unlimited | Complete exemption of cash value of policy owned by debtor, except value attributable to premiums paid in six months prior to bankruptcy filing or attachment. ID Code ยง11-605. | Yes. | Creditors of insured cannot attach if beneficiary of policy is not insured or insured's estate. Creditors of beneficiary other than insured cannot attach. ID Code ยง41-1833. |
| IL | Unlimited | Complete exemption of cash value if beneficiary is insured's spouse, child, parent, or dependent. 735 ILCS 5/12-1001 | Yes. | Creditors of beneficiary dependent upon insured cannot attach to extent proceeds necessary for support. 735 ILCS 5/12-1001. |
| IN | Unlimited | Complete exemption of cash value if payable to insured's spouse, child, parent or dependent. Ind. Code ยง27-1-12-14(e). Exemption excludes attachment of premium paid within one year of attachment or bankruptcy filing. Ind. Code ยง27-1-12-14(f). | Yes. | Creditors of insured cannot attach if beneficiary of policy is insured's spouse, child, parent, or dependent. Ind. Code ยง27-1-12-14(e). If policy issued by domestic life insurance company prohibits assignment of benefits, creditors of beneficiary cannot attach proceeds unless beneficiary paid for policy. Ind. Code ยง27-2-5-1. |
| IW | Unlimited, except to extent cash value increases from payments made in last two years exceed $10,000. | Complete exemption of cash value if payable to insured's spouse, child, parent or dependent. Exemption limited to $10,000 in value acquired during prior two years. Exemption excludes premiums paid over necessary premiums during past two years. Iowa Code ยง627.6(6). | Yes. | Creditors of insured cannot attach if beneficiary of policy is insured's spouse, child, or dependent. Iowa Code ยง627.6(6). Proceeds exempt up to $15,000 from creditors of beneficiary if spouse, child, or dependent. Iowa Code ยง627.6(6)(c). |
| KS | Unlimited | Complete exemption if beneficiary has insurable interest and policy not issued within past year. KS Stat. ยง40-414(a). | Yes. | Creditors of insured and creditors of beneficiaries cannot attach if beneficiary has insurable interest. KS Stat. ยง40-414(a). |
| KY | Unlimited | Money or benefit under insurance policy cannot be attached for payment of any debt or liability of policyholder. Ky. Stat. ยง427.110(1). | Yes. (Bankruptcy debtors may alternatively select federal exemptions). | Creditors of insured or owner cannot attach if beneficiary is not insured or owner. Creditors of beneficiary as of pay-out date cannot attach. Ky. Stat. ยง427.110(1). |
| LA | Unlimited | Cash value exempt from claims of creditors of insured or owner of policy. La. Rev. Stat. ยง22:912(A)(1). Limited to $35,000 if policy issued less than nine months prior to judgment execution or bankruptcy filing. La. Rev. Stat. ยง22:912(A)(2). | Yes. | Death benefits exempt against claims of creditors of insured, owner of policy, and beneficiaries as of time proceeds available to beneficiary. La. Rev. Stat. ยง22:912(A)(1). |
| ME | $4,000 | Cash value exemption limited to $4,000; available if debtor is insured or person on whom insured is dependent. 14 M.R.S. ยง1422(11). | Yes. | Creditors of insured / owner cannot attach if beneficiary is not insured / owner or estate. Creditors of beneficiary cannot attach to the extent claims exist at time proceeds of policy become available to beneficiary. 24-A M.R.S. ยง2428(2). |
| MD | Unlimited | Cash Value is exempt against claims of creditors of insured if beneficiary of policy is insured's spouse, child, or other dependent relative. Md. Ins. Code ยง16-111(a). Exemption does not include dividends if debtor elects to accept dividends in cash. Md. Ins. Code ยง16-111(b). | Yes. | Death benefits exempt against claims of creditors of insured if beneficiary of policy is insured's spouse, child, or other dependent relative. Md. Ins. Code ยง16-111(a). Policy proceeds exempt from claims of beneficiary's creditors. Md. Courts & Jud. Pro. ยง11-504(b)(2). |
| MA | Unlimited | Cash value is exempt if beneficiary's interest in proceeds would be exempt (i.e., beneficiary has "insurable interest"). 175 Mass. Code ยง125; see also In re Sloss, 279 B.R. 6 (2002). | Yes. (Bankruptcy debtors may alternatively select federal exemptions). | Proceeds exempt from claims of insured's creditors if has insurable interest. 175 Mass. Code ยง125. Exempt from beneficiary creditors if policy prohibits assignment or attachment, or if beneficiary is spouse. 175 Mass. Code ยง119A, 126. |
| MI | Unlimited | Cash value fully exempt from insured's creditors if beneficiary has insurable interest. Mich. Comp. Laws ยง500.2207(2). | Yes. (Bankruptcy debtors may alternatively select federal exemptions). | Policy proceeds exempt from claims of insured's creditors. Mich. Comp. Laws ยง500.2207. |
| MN | $9,600 | Cash value exemption if insured is debtor or individual upon whom debtor is dependent. Minn. Stat. ยง550.37(23). | Yes. (Bankruptcy debtors may alternatively select federal exemptions). | Policy proceeds exempt against claims of insured's creditors if beneficiary is not insured / owner. Minn. Stat. ยง61A.12(1). Exempt up to $48,000 against claims of beneficiary creditors if beneficiary is spouse or child. Exemption amount increased by $12,000 for each dependent of beneficiary. Minn. Stat. ยง550.37(10). |
| MS | Unlimited, unless over $50,000 paid into policy within 12 months. | Cash value exempt against claims of insured's creditors if insured is not beneficiary. Exemption limited to $50,000 for value attributable to policy payments made within 12 months prior to attachment or bankruptcy. MS Code ยง85-3-11. | Yes. | Proceeds exempt against claims of insured's creditors if beneficiary is not insured. MS Code ยง85-3-11 |
| MO | Unlimited. $150,000 in bankruptcy. | Cash value exempt from claims of insured / owner if beneficiary is insured or person upon whom insured is dependent. MO Stat. 513.430(8). Exemption not available in bankruptcy if policy purchased within one year prior to bankruptcy filing. | No. Exemption of cash value limited to $150,000 in bankruptcy proceedings. | Proceeds exempt against claims of creditors of insured and beneficiary. MO. Stat. ยง377.330. |
| MT | Unlimited | Cash value completely exempt against claims of owner's creditors. Mt. Code ยง 25-13-608(k). | Yes. | Proceeds exempt against claims of creditors of insured / owner and beneficiaries. Mt. Code ยง33-15-511. |
| NE | $100,000 | Cash value exempt up to $100,000 against claims of insured's creditors if beneficiary is not insured or insured's estate. Neb. Stat. ยง44-371(1)(a) and (b). | Yes. | Proceeds exempt against claims of insured's creditors if beneficiary is not insured or insured's estate; exempt against beneficiary's creditor's if beneficiary is related to the insured by blood or marriage. Neb. Stat. ยง44-371(1)(a). |
| NV | Unlimited | Cash value in life insurance policy completely exempt from execution. N.R.S. 21.090(1)(k). | Yes. | Proceeds exempt against claims of insured's creditors if beneficiary is not insured or insured's estate; exempt against claims of beneficiary's creditor's existing at time proceeds become available. N.R.S. ยง687B.260. |
| NH | Not provided under state law. | Cash value exemption not provided under New Hampshire law. See N.H. Stat. ยง511:02. | Yes. (Bankruptcy debtors may alternatively select federal exemptions). | Proceeds exempt against claims of insured's creditors if beneficiary is not insured / owner and has insurable interest. N.H. Stat. ยง408:02. Proceeds exempt from claims of beneficiary's creditors if beneficiary is married woman. N.H. Stat. ยง408:01. |
| NJ | Unclear | Similar Massachusetts statute has been interpreted as allowing complete exemption if beneficiary is third party and beneficiary's interest in death benefit would be exempt. | Yes. (Bankruptcy debtors may alternatively select federal exemptions). | Proceeds exempt against claims of creditors of insured and/or owner if beneficiary is not insured, owner, or insured / owner's estate and has insurable interest. N.J. Stat. ยง 17B:24-6. |
| NM | Unlimited | Cash value of policy insuring NM citizen or resident is completely exempt from creditor attachment. NM Stat. ยง42-10-3. | Yes. (Bankruptcy debtors may alternatively select federal exemptions). | Proceeds exempt from claims of creditors of insured (if NM citizen / resident) or beneficiary - unless contract expressly provides for payment of debts through policy. N.M. Stat. ยงยง 42-10-3, 42-10-5. |
| NY | Unlimited | Complete exemption of accelerated death benefits, cash surrender and/or loan value, and dividends against claims of policyowner's creditors. N.Y.C.L., Ins. ยง3212(b)(6). Exemption inapplicable if debtor actually receives cash loan value and has full control over funds. Tanges v. Schonbrun, 196 N.Y.S.2d 381 (Nassau County Supreme 1959) | Yes. | Proceeds exempt against claims of creditors of insured and/or owner if beneficiary is not insured, owner. N.Y.C.L., Ins. ยง3212(b)(1). Proceeds exempt against claims of beneficiary's creditors if beneficiary is spouse of insured. N.Y.C.L., Ins. ยง3212(b)(2). |
| NC | Unlimited | Complete exemption if beneficiary is insured's spouse and/or children. N.C. Gen. Stat. ยง58-58-95. | Yes. | Lawful beneficiaries have right to proceeds as against creditors of policyowner / insured unless beneficiary is insured or insured's estate. N.C. Gen. Stat. ยงยง58-58-95, 58-58-115. |
| ND | $8,000 | Exemption if owner is insured and beneficiary is spouse, children, or other dependent relative. N.D. Code ยง26.1-33-36. | Yes. | Exempt from claims of insured's creditors. If payable to decedent, decedent's heirs, or estate, proceeds considered as general assets of estate, which may be transferred by insured via will or contract. N.D. Code ยง26.1-33-40. |
| OH | Unlimited | Complete exemption if beneficiary is insured's spouse and/or children, dependent relative, charity, or creditor, or trust for benefit thereof. Ohio Code ยง3911.10. | Yes. | Exempt from claims of insured's creditors if beneficiary is insured's spouse and/or children, dependent relative, charity, or creditor, or trust for benefit thereof. Ohio Code ยง2329.66(A)(6)(b). |
| OK | Unlimited | Complete exemption from claims of insured's creditors. Okla. Stat. ยง36-3631.1 | Yes. | Policy proceeds exempt from claims of creditors of insured or beneficiaries. Okla. Stat. ยง36-3631.1. |
| OR | Unlimited | Complete exemption if beneficiary is not insured's estate. ORS ยง743.046(3). | Yes. | Proceeds exempt from claims of insured's creditors if beneficiary is not policyowner. ORS ยง743.046(1). |
| PA | Unlimited | Complete exemption if beneficiary is insured's spouse, child, or dependent relative of insured. 42 Pa. Stat. ยง8124(c)(6). | Yes. (Bankruptcy debtors may alternatively select federal exemptions). | Proceeds exempt from claims of insured's creditors if beneficiary is spouse, child, or dependent relative of insured. 42 Pa. Stat. ยง8124(c)(6). |
| RI | Unclear | Similar Massachusetts statute has been interpreted as allowing complete exemption if beneficiary is third party and beneficiary's interest in death benefit would be exempt. | Yes. (Bankruptcy debtors may alternatively select federal exemptions). | Proceeds exempt from claims of owner's and insured's creditors if beneficiary is not insured or estate. RI Gen. L ยง27-4-11. Proceeds exempt from beneficiary's creditors if policy provides for non-assignment. RI Gen. L. ยง27-4-12. |
| SC | Unlimited | Complete exemption if beneficiary is insured's spouse, children, or dependents, and policy purchased more than two years before bankruptcy. S.C. Code ยง38-63-40. (However, In re Sims, 421 B.R. 745 (2010), holds that exemption only applies following insured's death, in what appears to be minority interpretation of similar statutory language). $4,000 exemption if debtor is insured, or if beneficiary is spouse, children, dependent and policy purchased within two years prior. S.C. Code ยง15-41-30(9). | Yes. | Proceeds exempt from insured's creditors if beneficiary is insured's spouse, children, or dependents, and policy purchased more than two years before bankruptcy. S.C. Code ยง38-63-40.Proceeds up to $50,000 exempt from claims of insured's creditors if beneficiary is spouse, child, or dependent of insured. S.C. Code ยง38-65-90. |
| SD | $20,000 | Exemption from insured's creditors unless agreement assigns value of policy to creditor(s). S.D.C.L. ยง58-12-4. | Yes. | Proceeds exempt from insured's creditors up to $20,000 if beneficiary is spouse, or children. S.D.C.L. ยง58-12-4. Proceeds exempt from insured's and beneficiary's creditors up to $10,000 if payable to estate. S.D.C.L. ยง43-45-6. |
| TN | Unlimited | Complete exemption if beneficiary is insured's spouse, child, or dependent relative of insured. Tenn. Stat. ยง56-7-203. | Yes. | Proceeds exempt from insured's creditors if beneficiary is insured's spouse, child, or dependent relative of insured. Tenn. Stat. ยง56-7-203. Proceeds exempt from insured's creditors if beneficiary is estate and estate benefits surviving spouse and children. Tenn. Stat. ยง56-7-201. |
| TX | Unlimited | Cash value of insurance policies completely exempt from attachment by creditors or in bankruptcy. Tex. Ins. Code ยง1108.51. | Yes. | Proceeds completely exempt from creditors of beneficiary or insured except if premiums paid to avoid creditors, policy is contractually assigned, or debt involves child support. Tex. Ins. Code ยง1108.51. |
| UT | Unlimited | Cash value fully exempt, excluding payments to policy for one year prior to execution or bankruptcy. Utah Code ยง78B-5-505(1)(a)(xiii). | Yes. | Proceeds exempt from insured's creditors if beneficiary is spouse or child of insured and policy purchased more than one year prior. Proceeds exempt from beneficiary's creditors if beneficiary is spouse or child of insured. Utah Code ยง78B-5-505(1)(a)(xi) and (xii). |
| Vermont | Unlimited | Complete exemption of cash value except in case of credit life insurance. 12 Vt. Stat. ยง1740(18). | Yes. (Bankruptcy debtors may alternatively select federal exemptions). | Proceeds exempt against claims of insured's creditors if beneficiary is not insured or estate. 8 Vt. Stat. ยง3706. Proceeds exempt from beneficiary's creditors if beneficiary was dependent on insured as of date of death, to extent necessary for support. 12 Vt. Stat. ยง1740(19)(H). |
| VA | Unlimited | Complete exemption of cash value from creditors of insured and policyowner. Va. Code ยง38.2-3122(1) and (3). | Yes. | Proceeds exempt from claims of insured or owner's creditors. Va. Code ยง38.2-3122(1). Exempt from claims of beneficiary creditors if beneficiary is insured, owner, insured's spouse, child, or other dependent. Va. Code ยง38.2-3122(2). |
| WA | Not provided under state law for insured or policyowner. | Exemption does not apply to insured's interests in policy. R.C.W. ยง48.14.410(3)(a). | Yes. (Bankruptcy debtors may alternatively select federal exemptions). | Proceeds exempt against claims of insured's creditors if beneficiary is not insured or estate. Exempt from beneficiary's creditors in existence at time funds become available. R.C.W. ยง48.14.410(1). |
| WV | $8,000 | Bankruptcy exemption of cash value, dividends if insured is debtor or person on whom debtor is dependent. W.Va. Code ยง38-10-4(h). No specific creditor exemption for life insurance cash value. | No. Bankruptcy W.Va. Code ยง38-10-4; attachment W.Va. Code ยง38-8-1. | Proceeds exempt against claims of insured / owner's creditors if beneficiary is not insured or estate. W.Va. Code ยง33-6-27(a). Exempt from beneficiary's creditors if dependent on insured, up to amount necessary for care and support. W.Va. Code ยง38-10-4(k)(3). |
| WI | $150,000 | Exemption applies if debtor is policyowner and policy insures debtor, debtor's dependent, or person upon whom debtor is dependent. Wisc. Stat. 815.18(3)(f). Exemption limited to $4,000 if policy issued less than two years prior to attachment or bankruptcy date. Id. | Yes. (Bankruptcy debtors may alternatively select federal exemptions). | Proceeds exempt against claims of beneficiary's creditors if policy insured individual upon whom debtor was dependent. Wisc. Stat. 815.18(3)(i). |
| WY | Unlimited | Complete exemption as long as beneficiary is not policyowner. Wy. Stat. ยง26-15-129(a). Exemption extended to cash value as long as beneficiary is third party in In re Vigil, 74 Fed.Appx. 19 (10th Cir. 2003). | Yes. | Complete exemption as long as beneficiary is not policyowner. Wy. Stat. ยง26-15-129(a). Exemption extended to cash value as long as beneficiary is third party in In re Vigil, 74 Fed.Appx. 19 (10th Cir. 2003). |
Conclusion
Cash value life insurance has many benefits beyond simply providing a death benefit to your beneficiary. We encourage you to spend sometime looking around our site and checking out our resources to get a better idea if it is the right product for you.
Have questions? Please give us a call today for your complimentary strategy session and experience the I&E difference!
The Self Banking Blueprint
A Modern Approach To The Infinite Banking Concept
6 comments
ashley
Question: If a resident buys a policy in one state and then moves to another, is the cash value exemption based on current residence or where the policy was purchased?
SJG
Hi Ashley, I could guess at an answer; however, better that you get that information from an asset protection attorney in your home state to be sure.
Best, Steve Gibbs for I&E
Steven Gibbs is a licensed insurance agent, and the following agent
license numbers of Steven Gibbs are provided as required by state law:
Resident License; AZ agent #17508301,
Non-resident Licenses: TX agent #2273189, CA agent #0K10610,
LA agent #769583, MA agent #2049963, MN agent #40563357,
UT agent #655544.
John
This is perhaps one of the biggest benefits of a high-cash value whole life insurance policy, that you do not hear much about. Probably as no one wants to give legal advice. Either way, for me this is the icing on the cake – especially in such a volatile economy.
SJG
Hi John, that’s a good point. I guess as a lawyer I’m conscious of the fact that telling folks to check their asset protection laws is arguably more of a tip than advice:) Thanks for connecting.
Best, Steve Gibbs for I&E
Steven Gibbs is a licensed insurance agent, and the following agent
license numbers of Steven Gibbs are provided as required by state law:
Resident License; AZ agent #17508301,
Non-resident Licenses: TX agent #2273189, CA agent #0K10610,
LA agent #769583, MA agent #2049963, MN agent #40563357,
UT agent #655544.
Russell
Question: would Florida law protect a life insurance policy purchased by a Foreigh Naitonal from creditors?
SJG
Hello Russell, honestly it would be best to hear feedback from a FL asset protection attorney outside of a blog forum.\
Best, Steve Gibbs for I&E