A spendthrift provision in a life insurance policy is a legal mechanism designed to protect the proceeds of a life insurance policy from being misused by the beneficiary or seized by their creditors. Typical ones are found in life insurance policies from: Western-Southern Life; American National Life; Standard Life; and more. It ensures that the payout, often referred to as the death benefit, is managed in a way that aligns with the policyholder’s wishes. It provides financial security to the beneficiary without risking the funds to poor financial decisions, legal judgments, or creditor claims.
Spendthrift provisions typically stipulate that the death benefit is paid out in installments over a period of time, rather than as a single lump sum. This limits the beneficiary's immediate access to the full amount of the funds, thereby reducing the risk of irresponsible spending or predatory claims from creditors. You can find these in policies of: Liberty Mutual Life; Midland National Life; Sentinel Life; and more. Despite the protections offered by spendthrift provisions, disputes involving these clauses are not uncommon. These disputes may happen when beneficiaries or creditors challenge the terms of the provision or when the execution conflicts with state laws.
In one case involving Ameritas Life, the beneficiary of a life insurance policy contested the terms of a spendthrift provision that restricted their access to the proceeds. The insured had arranged for the death benefit to be distributed over 30 years, citing concerns about the beneficiary’s history of drinking and poor financial decisions.
Another case involved creditors attempting to claim the death benefit of a CUNA Mutual Group life insurance policy despite the presence of a spendthrift clause. In this case, the insured’s estate was heavily in debt, and creditors sought to access the life insurance proceeds to satisfy outstanding debts.
In a different case which involved Banner Life a policyholder divided the death benefit among several beneficiaries with staggered payment schedules, one beneficiary contested the arrangement, claiming it was inequitable.
Spendthrift provision life insurance disputes illustrate the need to have a top life insurance lawyer from LifeInsuranceAttorney.com fight and win.