Are creditors able to take away proceeds from a life insurance policy?

UPDATED: Jun 4, 2012

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UPDATED: Jun 4, 2012Fact Checked

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Asked June 4, 2012

1 Answer

The answer to your question would depend on whose creditors you are discussing. The proceeds of a life insurance policy cannot be diverted away from the named beneficiaries to pay for the debts of the deceased person, but if the beneficiary has outstanding debts, creditors can and will attempt to take some or all of the pay out, depending on the amount of the debt.

Some life insurance policies are set up to pay off the outstanding debts of the deceased, but there is no obligation to do so. If the person dies and leaves debts in arrears, creditors can place liens against any property in the estate to recoup their losses, but they cannot go after the insurance policies unless they are specifically written for the purpose of debt payments.

An exception to creditors going after life insurance benefits would be if the spouse of the estate were the inheritor. If the beneficiary and the deceased could be shown to share the debts in question, then creditors have the right of pursuing remuneration from the surviving partner. In this case, they would not actually be going after the life insurance benefits, but using the knowledge of those benefits in order to get restitution.

If the beneficiary has debts, creditors may attempt to get the money for the debt out of the death benefits proceeds. Since the award of the benefit is a matter of public record, creditors can use such information as a means of collecting debts. Again, it is not so much a case of trying to take the benefits as a matter of trying to settle the obligation under the knowledge that the debtor has inherited a potential solution.

Answered June 4, 2012 by Anonymous

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