Can You Protect Your Assets With Cash Value Life Insurance?
The quick answer is yes, but how much is genuinely covered…
If you are considering a cash-value life insurance policy or already have one. You will want to understand the protection it can provide you are in the right place.
Most life insurance policies have features about them that are favorable to the owner, insured, or beneficiary. Also, life insurance depending on the person and what state you may live in has other protection features such as protection from creditor and liability claims.
Your Cash Hiding In Plain Sight?
Most cash and other assets you will accumulate over a lifetime are a potential risk. But a permanent cash-value life insurance policy can hide your money without the risk your other assets have.
Cash Value Life Insurance Advantages:
- Cash value grows tax-deferred
- Access your cash values tax-free
- The death benefit is tax-free
- The death benefit can be estate tax-free
- Guaranteed death benefit
- Creditor and bankruptcy protection (State Specific)
Don’t Buy Just Yet
It is essential to have a good understanding of these potential benefits; however, do not buy a policy without seeking professional advice. We hear stories all the time of inexperienced agents overselling and miss designing policies. Although the agents are excited about the benefits of whole life and other permanent plans, you want to make sure you purchase the adequately designed plan. Remember, these plans are not for everyone. For some, it’s not even available, so care needs to be taken when approaching life insurance from this angle.
Each State is Different
Don’t just assume that your agent who is telling you that your cash value life insurance is a protected asset. For many states this is true but at varying levels. In the later part of this article, you will see what states are more generous regarding creditor protection benefits than others.
Some states like New York and Florida will protect 100% of your cash surrender values of a policy. States like California and many others offer little to no protection. Some states require specific beneficiary selections to get a benefit.
Cash Value Life Insurance is not your only option
If you are considering a product that provides you with asset protection. Cash-value life insurance is not a single game in town. There are some other ways to obtain this kind of protection. One of these is an IRA that will provide you with similar protection. One item to note is that the IRA will not provide you with any leverage like the death benefit of a cash value policy does.
Death Benefit Proceeds
The proceeds from a life insurance policy called the death benefit are typically protected from a creditor or liability claim. Life Insurance proceeds pass by contract and not through probate, ensuring that your beneficiaries receive the death benefit in full and tax-free.
Alabama
Life Insurance Cash Value: Exempt from creditors of both the original owner and the insured (though not if the policy beneficiary is the same).
Life Insurance Proceeds: Exempt from creditors of both the original owner and the insured (though not if the beneficiary is the same). However, if the insured is the owner’s spouse, the interest of the owner is exempt. And, if the insured is the owner, the interest of a beneficiary spouse is exempt.
Alaska
Life Insurance Cash Value: An unmatured policy is exempt up to $500,000.
Life Insurance Proceeds: Exempt from creditors up to $350 per week.
Arizona
Life Insurance Cash Value: Exempt if the policy has been owned for a continuous two-year period and the beneficiary is a spouse, child, parent, sibling or another dependent family member.
Life Insurance Proceeds: Exempt if the beneficiary is a surviving spouse or child.
Arkansas
Life Insurance Cash Value: Exempt from the creditors of the original owner and the insured.
Life Insurance Proceeds: Exempt from the creditors of both the original owner and the insured (though not if the beneficiary is the original owner or the insured).
California
Life Insurance Cash Value: Loan value exempt up to $9,700 ($19,400 for married persons).
Life Insurance Proceeds: Exempt to the extent necessary to support the debtor, his or her spouse, and dependents of the debtor.
Colorado
Life Insurance Cash Value: Exempt up to $250,000 (except for an increase in value attributable to contributions made in the prior 48 months and not if the beneficiary is the estate of the insured).
Life Insurance Proceeds: Exempt from creditors of the insured (unless the beneficiary is the insured’s estate).
Connecticut
Life Insurance Cash Value: Up to $4,000 exemption if the insured is the owner or person upon whom the owner is dependent.
Life Insurance Proceeds: Exempt from creditors of the insured (unless the beneficiary is the insured’s estate).
Delaware
Life Insurance Proceeds: Exempt from creditors.
District of Columbia
Life Insurance Proceeds: Exempt from creditors of both the original owner and the insured (though not if the policy beneficiary is the same).
Florida
Life Insurance Cash Value: Exempt from both the creditors of the insured and the beneficiary.
Life Insurance Proceeds: Exempt from creditors of the insured (though not if the policy beneficiary is the same).
Georgia
Life Insurance Cash Value: Exempt from creditors of the insured.
Life Insurance Proceeds: Exempt from creditors of the insured.
Hawaii
Life Insurance Cash Value: Exempt from creditors of the insured/owner if the beneficiary is the insured’s spouse, child, the parent, or a dependent.
Life Insurance Proceeds: Exempt from creditors of the insured/owner if the beneficiary is the insured’s spouse, child, the parent, or a dependent.
Idaho
Life Insurance Cash Value: Exempt (excluding accrued dividends, interest, loan value, and/or cash surrender value resulting from premiums paid within six months of filing bankruptcy or the date of attachment or levy)
Life Insurance Proceeds: Exempt from creditors of both the original owner and the insured (though not if the policy beneficiary is the same). Exempt from creditors of the beneficiary to the extent reasonably necessary to support the individual and his/her dependents if the beneficiary was the spouse or a dependent of the insured.
Illinois
Life Insurance Cash Value: Exempt from creditors of the insured if the beneficiary is a spouse, child, parent, or other dependents.
Life Insurance Proceeds: Exempt from creditors of the insured if the beneficiary is a spouse, child, parent, or other dependents. Exempt from creditors of the beneficiary to the extent necessary for the support of beneficiary and dependents.
Indiana
Life Insurance Cash Value: Premiums paid toward a policy that names a spouse, child or dependent relative are exempt unless the premiums are paid less than a year prior to filing for bankruptcy.
Life Insurance Proceeds: Exempt from creditors of the insured or spouse of the insured if the beneficiary is the spouse, children or any dependent relative.
Iowa
Life Insurance Cash Value: Exempt from creditors of the insured if the beneficiary is the spouse, child, or dependent. The exemption is limited to $10,000 if such value is attributable to increases or contributions made within the prior two years.
Life Insurance Proceeds: Exempt from creditors of the insured if the beneficiary is the spouse, child, or dependent of the insured. Exempt from creditors of the beneficiary for debts incurred prior to the death of the insured up to $15,000 if the beneficiary is a spouse, child or dependent.
Kansas
Life Insurance Cash Value: Exempt from the creditors of the policyholder, insured and beneficiaries unless creditors establish claim within one year of issuance of the policy.
Life Insurance Proceeds: Exempt from the creditors of the policyholder, insured and beneficiaries unless creditors establish a claim within one year of issuance of the policy.
Kentucky
Life Insurance Cash Value: Exempt from creditors of both the original owner and the insured.
Life Insurance Proceeds: The interest of the beneficiary is exempt from creditors of both the original owner and the insured (though not if the policy beneficiary is the original owner or the insured). Exempt from creditors of the beneficiary for debts incurred prior to the death of the insured/availability of the proceeds.
Louisiana
Life Insurance Cash Value: Generally exempt. However, if the owner files for bankruptcy within nine (9) months of issuance, a maximum of $35,000 is exempt.
Life Insurance Proceeds: The interest of the beneficiary (including the estate of the insured) is exempt from creditors of the original owner and the insured. Exempt from creditors of the beneficiary for debts incurred prior to the death of the insured/availability of the proceeds.
Maine
Life Insurance Cash Value: $4,000 maximum accrued dividend or interest or loan or cash value is exempt provided the insured is the debtor or individual upon whom the debtor is dependent.
Life Insurance Proceeds: The interest of the beneficiary is exempt from creditors of both the original owner and the insured (though not if the policy beneficiary is the original owner or the insured). A beneficiary’s interest in payment under the policy protecting an individual of whom the beneficiary was dependent is exempt from creditors to the extent necessary for the support of the beneficiary and dependents.
Maryland
Life Insurance Cash Value: Exempt from creditors of the insured if the beneficiary is the insured’s spouse, child, the parent, or other dependent relatives.
Life Insurance Proceeds: Exempt from creditors of the insured if the beneficiary is the insured’s spouse, child, the parent or other dependent relatives.
Massachusetts
Life Insurance Proceeds: Exempt from the creditors of the original owner if the beneficiary is someone other than the person who effected the policy. Exempt from the creditors of the beneficiary if the beneficiary is the wife of the insured.
Michigan
Life Insurance Cash Value: Exempt from creditors of both the original owner and the insured (though not if the policy beneficiary is the same). Exempt from creditors of a husband if the policy owned by the husband names the surviving wife and/or children as beneficiaries. Exempt from creditors of a husband if the policy owned by the wife insures the husband. Exempt from the creditors of the beneficiary (though not if the insured is beneficiary) if so provided in the policy.
Life Insurance Proceeds: Exempt from creditors of both the original owner and the insured (though not if the policy beneficiary is the same). Exempt from creditors of a husband if the policy owned by the husband names the surviving wife and/or children as beneficiaries. Exempt from creditors of a husband if the policy owned by the wife insures the husband. Exempt from the creditors of the beneficiary (though not if the insured is beneficiary) if so provided in the policy.
Minnesota
Life Insurance Cash Value: Up to $9,600 accrued dividend or interest or loan or cash value is exempt provided the insured is the debtor or individual upon whom the debtor is dependent.
Life Insurance Proceeds: Exempt from the creditors of the insured/original owner. Exempt up to $48,000 for proceeds payable to a surviving spouse or child (plus an additional $12,000 for each other dependent of the surviving spouse or child).
Mississippi
Life Insurance Cash Value: Exempt. However, there is an exemption limit of $50,000 if derived from premiums paid within the previous twelve months.
Life Insurance Proceeds: Exempt. Proceeds payable to the estate of the insured are exempt up to $50,000 from all, but the debts attributable to the insured’s last illness and burial (minus any proceeds available to the beneficiaries under other life policies).
Missouri
Life Insurance Cash Value: Exempt from the owner’s creditors if the insured is the owner or the insured is an individual upon whom the owner is a dependent, provided that such exemption in a bankruptcy proceeding is limited to $150,000. No bankruptcy exemption if the policy was purchased within one year of bankruptcy commencement.
Life Insurance Proceeds: Beneficiary’s interest in proceeds and avails are exempt.
Montana
Life Insurance Cash Value: Exempt.
Life Insurance Proceeds: Beneficiary’s interest in proceeds and avails are exempt from creditors of the insured or original owner (though not if the beneficiary is the insured or original owner).
Nebraska
Life Insurance Cash Value: Exempt up to a value of $100,000 for all insurance policies and annuity contracts (though not including policies for which the estate is the beneficiary). However, any increase in cash value attributable to contributions, premiums, or other payments made within the three previous years is not exempt.
Life Insurance Proceeds: Exempt up to a value of $100,000 for all insurance policies and annuity contracts (though not including policies for which the estate is the beneficiary). Plus, entirely exempt from the creditors of the beneficiary if there is a blood or marital relationship between the insured and the beneficiary.
Nevada
Life Insurance Cash Value: Exempt from creditors.
Life Insurance Proceeds: Exempt from creditors.
New Hampshire
Life Insurance Proceeds: Beneficiary’s interest exempt from creditors of the insured who purchases insurance on his or her life to benefit another person (unless the estate is the beneficiary). If the beneficiary is a married woman, her interest is exempt from her creditors.
New Jersey
Life Insurance Proceeds: Beneficiary’s interest exempt from creditors of the insured or original owner (unless the insured, original owner or estate of either individual is the beneficiary). Also exempt from creditors of the beneficiary for debts incurred before the availability of the proceeds.
New Mexico
Life Insurance Cash Value: Entirely exempt.
Life Insurance Proceeds: Entirely exempt.
New York
Life Insurance Cash Value: Exempt
Life Insurance Proceeds: Exempt from the creditors of both the original owner and the insured as long as the beneficiary is someone other than the owner/insured. Exempt from the creditors of an owner who insures the life of his/her spouse.
North Carolina
Life Insurance Proceeds: Exempt from creditors of the insured or original owner (unless the beneficiary is the same).
North Dakota
Life Insurance Cash Value: Up to $8,000 if the owner is the insured or someone on whom the debtor is a dependent is the insured.
Life Insurance Proceeds: Exempt from creditors of the insured. Exempt from creditors of the beneficiary if the beneficiary was a dependent of the insured to the extent reasonably necessary to support the debtor and any dependent.
Ohio
Life Insurance Cash Value and Proceeds: Exempt from creditors of the insured if the beneficiary is a spouse, child, or dependent.
Oklahoma
Life Insurance Cash Value: Exempt.
Life Insurance Proceeds: Exempt.
Oregon
Life Insurance Cash Value: Exempt from creditors of the insured or original owner (unless the beneficiary is the same).
Life Insurance Proceeds: Exempt from creditors of the insured or original owner (unless the beneficiary is the same).
Pennsylvania
Life Insurance Proceeds: Exempt from creditors of the insured if the beneficiary is a spouse, child, or dependent relative of the insured. Exempt from creditors of the beneficiary to the extent required to provide an income or return of $100 per month.
Rhode Island
Life Insurance Cash Value: Exempt from creditors of the insured or original owner (unless the beneficiary is the same).
Life Insurance Proceeds: Exempt from creditors of the insured or original owner (unless the beneficiary is the same).
South Carolina
Life Insurance Cash Value and Proceeds: The beneficiary interest of a spouse, child or dependent of the insured is exempt from creditors of the insured (as long as the beneficiary is not the insured’s estate). However, if the insured filed a petition in bankruptcy within two years of purchasing the insurance, the proceeds and cash surrender value are only exempt up to $4,875.
Unmatured Life Insurance Contract: Except for credit insurance policies, any dividend, interest, or loan value is exempt up to $4,875.
South Dakota
Life Insurance Cash Value: Exempt from creditors of both the insured and the beneficiary up to $10,000 if the beneficiary is the estate and the decedent is survived by a spouse or children. Exemption increases to $20,000 if the beneficiary is directly a spouse or child.
Life Insurance Proceeds: Exempt from creditors of both the insured and the beneficiary up to $10,000 if the beneficiary is the estate and the decedent is survived by a spouse or children. Exemption increases to $20,000 if the beneficiary is directly a spouse or child.
Tennessee
Life Insurance Cash Value: Exempt from creditors of the insured if the beneficiary is a spouse or child.
Life Insurance Proceeds: Exempt from creditors of the insured if the beneficiary is a spouse, child or dependent of the insured (even if proceeds are payable to the insured’s estate).
Texas
Life Insurance Cash Value: Entirely exempt.
Life Insurance Proceeds: Entirely exempt.
Utah
Life Insurance Cash Value: Exempt excluding payments made on the contract within the prior year.
Life Insurance Proceeds: Proceeds from a policy that insures the spouse or child of the debtor are exempt if the policy has been owned by the debtor for a continuous unexpired period of one year. Proceeds from a policy that insures the debtor are exempt if the policy has been in existence for a continuous unexpired period of one year.
Vermont
Life Insurance Cash Value: Beneficiary interest exempt from creditors of the insured or original owner.
Life Insurance Proceeds: Exempt from creditors of the insured or the owners. Also, the beneficiary’s interest is exempt from creditors of the beneficiary that exist at the time proceeds or avails are made available.
Virginia
Life Insurance Cash Value: Exempt from creditors of insured, owner, purchaser or beneficiary (if the beneficiary is the insured, the owner or the spouse, intended spouse or dependent of the insured or owner), unless the policy was purchased within six months prior to a bankruptcy filing.
Life Insurance Proceeds: Exempt from creditors of insured, owner, purchaser or beneficiary (if the beneficiary is the insured, the owner or the spouse, intended spouse or dependent of the insured or owner), unless the policy was purchased within six months prior to a bankruptcy filing.
Washington
Life Insurance Cash Value: Exempt from creditors of the insured or the original owner.
Life Insurance Proceeds: The interest of the beneficiary (not the insured or the original owner) is exempt from creditors of the insured or original owner. Also, proceeds are exempt from creditors of the beneficiary that exist at the time proceeds are made available.
West Virginia
Life Insurance Cash Value: An unmatured life insurance policy owned by the debtor that insures the debtor or a person to whom the debtor is dependent is exempt up to $8,000.
Life Insurance Proceeds: The interest of the beneficiary (not the owner or insured) in the proceeds and avails is exempt from creditors of the owner or insured (except to the extent reasonably necessary for support of the beneficiary and his or her dependents if the beneficiary was a dependent of the insured on the date of death).
Wisconsin
Life Insurance Cash Value: Value of a life policy that insures the debtor, his dependent or a person to whom the debtor is dependent is exempt up to $150,000 (but only up to $4,000 if the contract was issued less than 24 months prior). The exemption applies to the debtor’s aggregate interest for all life policies and annuities.
Life Insurance Proceeds: Exempt from creditors of the beneficiary to the extent reasonably necessary for the support of the beneficiary and his or her dependents.
Wyoming
Life Insurance Cash Value: The interest of the beneficiary (not the owner or insured) in the proceeds and avails are exempt from creditors of the owner or insured.
Life Insurance Proceeds: The interest of the beneficiary (not the owner or insured) in the proceeds and avails are exempt from creditors of the owner or insured.
Legal Disclaimer
This article is for information purposes only. Do not take any of this information as legal advice. You should make sure to speak with a professional before taking any action. If there are any negative impacts from self implementation on what we discussed regarding cash value life insurance and asset protection we are sorry but we warned you.
Recommended Reading
Participating Whole Life Insurance: Things to Know
Whole Life Insurance for Dummies
