Is a Term Life Insurance Policy an Asset Subject to Personal Injury Suit?
Term life insurance is a type of life insurance which provides basic death benefit protection in exchange for premium payments. Term life insurance also provides certain protections against lawsuits. These protections are in place to ensure that your beneficiaries receive the money to which they are entitled. Make sure you understand how term life insurance is protected.
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Process
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In order for your term life insurance policy to be protected from creditors in a personal injury lawsuit, you must have a named beneficiary. In most states, the beneficiary must be your spouse or children but may also be another individual who has a financial interest in you, like a business partner. Your beneficiaries also must not be involved in the personal injury lawsuit.
Significance
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If you have named beneficiaries, your creditors won't be able to secure the proceeds of the policy after your death. This is significant because it means that the money will pass directly to the beneficiaries and any money that is owed in a personal injury suit must come from other sources.
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Benefit
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The benefit of the protections afforded to term life insurance policies is that your beneficiaries aren't disinherited if you are sued. As long as your beneficiaries are not involved in the suit with you, they will receive the death benefits.
Consideration
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You must have named beneficiaries prior to any lawsuit. If the court discovers that you are renaming beneficiaries or changing beneficiaries to defraud your creditors or to avoid paying for damages, then the court may disallow the changes to your policy. This may result in your creditors being able to claim the proceeds of your policy if they are left to the estate after your death.
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