About the Author
Steven Gibbs, JD, AEP® is an Estate Planning Attorney and Asset Protection Specialist with extensive experience helping clients safeguard their wealth through strategic life insurance planning. As a licensed attorney and Accredited Estate Planner®, Steve combines deep legal expertise with practical financial strategy to help families protect their assets from creditors, lawsuits, and financial uncertainty.
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
- Frequently Asked Questions
- State-by-State Protection Table
- Conclusion
U.S. Map of Bankruptcy and Creditor Protection for Life Insurance
⚠️ IMPORTANT DISCLAIMER: The information in this guide represents our best understanding of current state laws as of August 2025. However, state laws change frequently, exemption amounts are adjusted for inflation, and court interpretations can modify protections. This is NOT legal advice. You must consult with a qualified attorney in your state before making any decisions based on this information. Do not rely solely on this data for asset protection planning.
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 policy’s 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.
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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.
“Life insurance isn’t just about protecting your family after you’re gone—it’s one of the most overlooked asset protection tools available today. When properly structured, it creates a financial fortress that creditors often cannot breach. In my years of practice, I’ve seen countless clients achieve peace of mind knowing their assets are secure, regardless of economic turbulence or unforeseen legal challenges. Cash value life insurance provides that peace of mind knowing your cash value is protected.”
— Steve Gibbs, JD, AEP®
Estate Planning Attorney & Asset Protection Specialist
In general, when a creditor obtains a judgment or when a debtor files bankruptcy, the debtor’s assets can be “attached” to satisfy debts. This is particularly concerning for business owners, whose personal assets may be at risk from both business and personal liabilities. An attached asset is seized and liquidated, and the proceeds are applied to creditor claims—potentially devastating for entrepreneurs who’ve spent years building their wealth.
However, every state has exemption laws identifying certain asset categories which are immune, or partially immune, from attachment. These exemptions form the foundation of effective business owner asset protection strategies that can safeguard personal wealth from creditors, lawsuits, and other financial threats. Among these exemptions, life insurance stands out as one of the most powerful tools in a business owner’s financial defense arsenal.
Key takeaway: The classic example is the “homestead exemption” protecting a debtor’s primary residence, but the cash value and death benefits of life insurance policies are also exempt – in whole or in part – in nearly every state.
How Do Life Insurance Exemptions Work Against Creditors?
Simply stated: Exemption laws vary considerably between states and don’t 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 policy’s cash value to satisfy the judgment up to the amount of the exemption.
It doesn’t 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.
Bottom line: 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. 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.
Most importantly: 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:
- Fraudulent Intent: If a court finds that life insurance was purchased for the purpose of defrauding creditors, exemptions usually won’t be available
- Domestic Support Obligations: Claims for child support or alimony may override exemptions
- Collateral Pledges: If a policy’s cash value is pledged as collateral for a loan, it won’t 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 debtor’s assets (the “bankruptcy estate”). 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.
Research confirms: Exempt assets like cash value life insurance 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 – including New York, Pennsylvania, and Texas – allow debtors to choose either state or federal exemptions (but not both).
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Federal Exemptions
According to federal law: Under the federal exemptions, whole life and universal life cash value can be held as exempt up to $16,850 (updated April 2025). See 11 U.S.C. 522
The variance between state exemption rules – and the choice between federal and state exemptions – can make a significant difference in the amount of wealth that survives a bankruptcy case.
Expert analysis reveals: 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 over $12,000 in additional cash value if federal exemptions are claimed.
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Exemption of Life Insurance Death Benefits
Most states also allow exemption of life insurance policy proceeds. The exemption sometimes requires that proceeds be payable to a third-party beneficiary, but some states exempt death benefits even if payable to the insured’s estate.
As with cash value, there can be conditions for exemption of policy proceeds.
Studies demonstrate: In New York, for instance, policy proceeds cannot be attached by a beneficiary’s creditors if the beneficiary is the insured’s spouse.
Notably, life insurance proceeds paid to a third party automatically transfer at death and are therefore not included within an insured decedent’s 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 – 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 insured’s life and then, upon death, a trustee administers the proceeds in accordance with directions provided by the grantor of the trust in the trust’s declaration.
Best practices include: Because an ILIT is irrevocable, policy benefits are not included in the insured’s 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 policy’s cash value, though most of those have one or more conditions.
Data demonstrates: The most common condition is that the policy’s 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.
Frequently Asked Questions
Q: Does life insurance protect assets from creditors?
A: Yes, in most states, life insurance policies offer some level of asset protection from creditors. The extent of protection varies by state, with some states offering unlimited protection for cash value, while others cap the exemption amount. Typically, the cash value of permanent life insurance (whole life and universal life) cannot be attached by creditors to satisfy judgments, up to the exemption amount defined by state law.
Q: Is life insurance cash value protected in bankruptcy?
A: Yes, life insurance cash value is often protected in bankruptcy proceedings. When an individual files for bankruptcy, exempt assets like cash value life insurance are generally held outside of the bankruptcy estate and not subject to attachment. Most states apply the same exemptions in bankruptcy as they do for regular creditor claims, though some states use different standards. Additionally, about twenty states allow debtors to choose between state or federal exemptions, with federal exemptions protecting up to $16,850 in cash value (as of April 2025).
Q: Are life insurance death benefits protected from creditors?
A: In most states, life insurance death benefits are protected from creditors, especially when payable to a third-party beneficiary. When proceeds are paid to someone other than the insured, they automatically transfer at death and are typically not included in the insured’s estate, making them unavailable to the deceased’s creditors. Protection from the beneficiary’s creditors varies by state law. Some states also protect proceeds even when payable to the insured’s estate.
Q: What conditions affect life insurance creditor protection?
A: Several conditions can affect life insurance creditor protection: 1) Beneficiary designation – many states require the beneficiary to be someone other than the policyowner for the cash value to be exempt; 2) Fraud – if a court finds that life insurance was purchased to defraud creditors, exemptions usually won’t apply; 3) Domestic support – claims for child support or alimony may override exemptions; 4) Collateral – if policy cash value is pledged as loan collateral, it won’t be exempt from that specific creditor; 5) State residency – protection levels vary significantly between states.
Q: What is an ILIT and how does it protect life insurance from creditors?
A: An ILIT (Irrevocable Life Insurance Trust) provides additional protection against creditors for both the insured and beneficiaries. The trust owns the policy during the insured’s lifetime, and upon death, a trustee administers the proceeds according to the trust declaration. Because an ILIT is irrevocable, policy benefits are not included in the insured’s taxable estate for federal estate tax purposes, and are generally protected from the insured’s creditors. The trust structure can also provide protection from beneficiaries’ creditors if properly structured with spendthrift provisions.
Q: Which states offer the strongest protection for life insurance against creditors?
A: Florida offers one of the most generous exemption schemes, with unlimited cash-value exemption regardless of beneficiary and full exemption of policy proceeds as long as the beneficiary is a third party. Other states with strong protections include Texas, which provides unlimited exemption for cash value and death benefits, and New York, which has strong protections especially for policies with a spouse as beneficiary. States vary widely in their protections, with some offering unlimited exemptions and others capping the amount protected or requiring specific beneficiary designations.
Q: Can the IRS seize life insurance cash value despite state exemptions?
A: Yes, state exemption laws generally do not apply to the IRS. If you owe federal taxes, the IRS can potentially attach to your life insurance policy’s cash value regardless of state exemption laws. This is an important limitation to be aware of when considering life insurance as part of an asset protection strategy.
State-by-State Protection Table
⚠️ DISCLAIMER: The following table represents our best understanding of state creditor protection laws as of August 2025. However, state laws change frequently, exemption amounts are regularly adjusted for inflation, and court interpretations can modify these protections. This information is for educational purposes only and is NOT legal advice. You MUST consult with a qualified attorney in your state before making any asset protection decisions. Do not rely solely on this data – always verify current laws with local legal counsel.
| State | Cash Value Protection Amount | Protection Conditions | Same for Bankruptcy & Creditors? | Death Benefit Protection |
|---|---|---|---|---|
| AL | Unlimited | Complete exemption if spouse and/or children named beneficiary of policy. Value of policy owned by insured’s spouse is also protected. | Yes | Creditors of insured / policy owner cannot attach if beneficiary of policy is not owner or insured individual. |
| AK | $500,000 | Exemption of accrued dividends and loan value exceeding $500,000. Amounts over $500,000 may be attached via court order. | 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. |
| 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. | Yes | Creditors of insured / policy owner cannot attach if beneficiary of policy is not owner or insured individual. Proceeds exempt from claims of beneficiary creditors up to $20,000 if beneficiary is insured’s spouse or child. |
| 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. | 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. Proceeds exempt from claims of beneficiary creditors, except if creditor claim is based on contractual debt, in which case exemption limited to $500. |
| CA | $19,625 (System 2 exemptions – may be doubled if debtor is married) | $19,625 exemption applies to loan value of unmatured policy under System 2 (703.140) exemptions. California has two exemption systems. | Yes | Beneficiary creditors cannot attach proceeds to extent necessary to provide for care of beneficiary or beneficiary’s spouse and/or children. |
| 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. | Yes | Creditors of insured cannot attach if beneficiary of policy is not insured’s estate. |
| CT | $4,000 | Cash value exemption if policy owned by debtor and policy insures debtor or individual upon whom debtor is dependent. | Yes (Bankruptcy debtors may alternatively select federal exemptions) | Creditors of insured cannot attach if beneficiary of policy is not insured’s estate. |
| DE | Unlimited | Complete exemption available for any assets or amounts held or payable to the debtor under any life insurance policy. | Yes | Proceeds exempt from claims of beneficiary creditors which existed as of time policy proceeds become available to beneficiary. |
| DC | Unlimited | Complete exemption of any unmatured life insurance policy owned by debtor except policy intended to pay debts of debtor. | 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. Proceeds exempt from claims of beneficiary creditors if dependent of insured and necessary for support. |
| FL | Unlimited | Cash value of life insurance policy insuring Florida resident or citizen may not be attached by creditor of insured. | Yes | Creditors of insured Florida resident cannot attach if beneficiary of policy is not insured or insured’s estate. |
| GA | Unlimited | Cash value of life insurance policy insuring Georgia resident or citizen may not be attached by creditor of insured. | Generally, yes. But cash value exemption in bankruptcy capped at $2,000. | Creditors of insured Georgia resident cannot attach if beneficiary of policy is not insured or insured’s estate. |
| HI | Unlimited | Complete exemption of cash value if beneficiary is insured’s spouse, child, parent, or dependent. | Yes (Bankruptcy debtors may alternatively select federal exemptions) | Creditors of insured cannot attach death benefits. |
| 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. | 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. |
| IL | Unlimited | Complete exemption of cash value if beneficiary is insured’s spouse, child, parent, or dependent. | Yes | Creditors of beneficiary dependent upon insured cannot attach to extent proceeds necessary for support. |
| IN | Unlimited | Complete exemption of cash value if payable to insured’s spouse, child, parent or dependent. Exemption excludes attachment of premium paid within one year of attachment or bankruptcy filing. | Yes | Creditors of insured cannot attach if beneficiary of policy is insured’s spouse, child, parent, or dependent. If policy issued by domestic life insurance company prohibits assignment of benefits, creditors of beneficiary cannot attach proceeds unless beneficiary paid for policy. |
| IA | 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. | Yes | Creditors of insured cannot attach if beneficiary of policy is insured’s spouse, child, or dependent. Proceeds exempt up to $15,000 from creditors of beneficiary if spouse, child, or dependent. |
| KS | Unlimited | Complete exemption if beneficiary has insurable interest and policy not issued within past year. | Yes | Creditors of insured and creditors of beneficiaries cannot attach if beneficiary has insurable interest. |
| KY | Unlimited | Money or benefit under insurance policy cannot be attached for payment of any debt or liability of policyholder. | 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. |
| LA | Unlimited | Cash value exempt from claims of creditors of insured or owner of policy. Limited to $35,000 if policy issued less than nine months prior to judgment execution or bankruptcy filing. | Yes | Death benefits exempt against claims of creditors of insured, owner of policy, and beneficiaries as of time proceeds available to beneficiary. |
| ME | $4,000 | Cash value exemption limited to $4,000; available if debtor is insured or person on whom insured is dependent. | 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. |
| 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. Exemption does not include dividends if debtor elects to accept dividends in cash. | Yes | Death benefits exempt against claims of creditors of insured if beneficiary of policy is insured’s spouse, child, or other dependent relative. Policy proceeds exempt from claims of beneficiary’s creditors. |
| MA | Unlimited | Cash value is exempt if beneficiary’s interest in proceeds would be exempt (i.e., beneficiary has “insurable interest”). | Yes (Bankruptcy debtors may alternatively select federal exemptions) | Proceeds exempt from claims of insured’s creditors if has insurable interest. Exempt from beneficiary creditors if policy prohibits assignment or attachment, or if beneficiary is spouse. |
| MI | Unlimited | Cash value fully exempt from insured’s creditors if beneficiary has insurable interest. | Yes (Bankruptcy debtors may alternatively select federal exemptions) | Policy proceeds exempt from claims of insured’s creditors. |
| MN | $9,600 | Cash value exemption if insured is debtor or individual upon whom debtor is dependent. | Yes (Bankruptcy debtors may alternatively select federal exemptions) | Policy proceeds exempt against claims of insured’s creditors if beneficiary is not insured / owner. 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. |
| 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. | Yes | Proceeds exempt against claims of insured’s creditors if beneficiary is not insured. |
| 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. 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. |
| MT | Unlimited | Cash value completely exempt against claims of owner’s creditors. | Yes | Proceeds exempt against claims of creditors of insured / owner and beneficiaries. |
| 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. | 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. |
| NV | Unlimited | Cash value in life insurance policy completely exempt from execution. | 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. |
| NH | Not provided under state law | Cash value exemption not provided under New Hampshire law. | 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. Proceeds exempt from claims of beneficiary’s creditors if beneficiary is married woman. |
| 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. |
| NM | Unlimited | Cash value of policy insuring NM citizen or resident is completely exempt from creditor attachment. | 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. |
| NY | Unlimited | Complete exemption of accelerated death benefits, cash surrender and/or loan value, and dividends against claims of policyowner’s creditors. Exemption inapplicable if debtor actually receives cash loan value and has full control over funds. | Yes | Proceeds exempt against claims of creditors of insured and/or owner if beneficiary is not insured, owner. Proceeds exempt against claims of beneficiary’s creditors if beneficiary is spouse of insured. |
| NC | Unlimited | Complete exemption if beneficiary is insured’s spouse and/or children. | Yes | Lawful beneficiaries have right to proceeds as against creditors of policyowner / insured unless beneficiary is insured or insured’s estate. |
| ND | $8,000 | Exemption if owner is insured and beneficiary is spouse, children, or other dependent relative. | 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. |
| OH | Unlimited | Complete exemption if beneficiary is insured’s spouse and/or children, dependent relative, charity, or creditor, or trust for benefit thereof. | 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. |
| OK | Unlimited | Complete exemption from claims of insured’s creditors. | Yes | Policy proceeds exempt from claims of creditors of insured or beneficiaries. |
| OR | Unlimited | Complete exemption if beneficiary is not insured’s estate. | Yes | Proceeds exempt from claims of insured’s creditors if beneficiary is not policyowner. |
| PA | Unlimited | Complete exemption if beneficiary is insured’s spouse, child, or dependent relative of insured. | 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. |
| 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. Proceeds exempt from beneficiary’s creditors if policy provides for non-assignment. |
| SC | Unlimited | Complete exemption if beneficiary is insured’s spouse, children, or dependents, and policy purchased more than two years before bankruptcy. $4,000 exemption if debtor is insured, or if beneficiary is spouse, children, dependent and policy purchased within two years prior. | 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. Proceeds up to $50,000 exempt from claims of insured’s creditors if beneficiary is spouse, child, or dependent of insured. |
| SD | $20,000 | Exemption from insured’s creditors unless agreement assigns value of policy to creditor(s). | Yes | Proceeds exempt from insured’s creditors up to $20,000 if beneficiary is spouse, or children. Proceeds exempt from insured’s and beneficiary’s creditors up to $10,000 if payable to estate. |
| TN | Unlimited | Complete exemption if beneficiary is insured’s spouse, child, or dependent relative of insured. | Yes | Proceeds exempt from insured’s creditors if beneficiary is insured’s spouse, child, or dependent relative of insured. Proceeds exempt from insured’s creditors if beneficiary is estate and estate benefits surviving spouse and children. |
| TX | Unlimited | Cash value of insurance policies completely exempt from attachment by creditors or in bankruptcy. | 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. |
| UT | Unlimited | Cash value fully exempt, excluding payments to policy for one year prior to execution or bankruptcy. | 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. |
| VT | Unlimited | Complete exemption of cash value except in case of credit life insurance. | Yes (Bankruptcy debtors may alternatively select federal exemptions) | Proceeds exempt against claims of insured’s creditors if beneficiary is not insured or estate. Proceeds exempt from beneficiary’s creditors if beneficiary was dependent on insured as of date of death, to extent necessary for support. |
| VA | Unlimited | Complete exemption of cash value from creditors of insured and policyowner. | Yes | Proceeds exempt from claims of insured or owner’s creditors. Exempt from claims of beneficiary creditors if beneficiary is insured, owner, insured’s spouse, child, or other dependent. |
| WA | Not provided under state law for insured or policyowner | Exemption does not apply to insured’s interests in policy. | 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. |
| WV | $8,000 | Bankruptcy exemption of cash value, dividends if insured is debtor or person on whom debtor is dependent. No specific creditor exemption for life insurance cash value. | No. Bankruptcy vs. attachment have different standards. | Proceeds exempt against claims of insured / owner’s creditors if beneficiary is not insured or estate. Exempt from beneficiary’s creditors if dependent on insured, up to amount necessary for care and support. |
| WI | $150,000 | Exemption applies if debtor is policyowner and policy insures debtor, debtor’s dependent, or person upon whom debtor is dependent. Exemption limited to $4,000 if policy issued less than two years prior to attachment or bankruptcy date. | 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. |
| WY | Unlimited | Complete exemption as long as beneficiary is not policyowner. Exemption extended to cash value as long as beneficiary is third party. | Yes | Complete exemption as long as beneficiary is not policyowner. Exemption extended to cash value as long as beneficiary is third party. |
💭 Final Thought: Which aspect of creditor protection matters most for your specific situation and family goals?
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.
Bottom line: Understanding creditor protection is just the beginning of a comprehensive asset protection strategy.
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8 comments
Van
Are index Universal Life policies protected from government seizure?
Insurance&Estates
Life insurance policies, including Index Universal Life, generally receive some level of creditor protection in most states, but this protection varies dramatically from state to state.
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