Is the cash value of life insurance protected from creditors?

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Is the cash value of life insurance protected from creditors?

I have a foreclosed property that the lender may obtaina deficiency judgement on against me. I want to make sure that the cash value I have inside of my fixed indexed universal life policy is protected from creditors in my state. Is this true? If it is true would that be applicable for MEC’d policies as well as following the 7-pay guidelines policies?

Asked on September 17, 2010 under Bankruptcy Law, Hawaii

Answers:

M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

Generally speaking life insurance policies - likes annuities and pension plans - are protected from the likes of creditors and in a bankruptcy proceeding.  Some states - such as Florida - specifically protect your type of policy from being attached by a creditor in a deficiency judgement situation such as yours.  However, I would take your polices and all your information as to your assets to a debt counselor as soon as possible.  Try and see if there is any way - even at this late stage - to avoid the deficiency judgement by giving a deed in lieu of foreclosure or obtaining a waiver.  Threaten bankruptcy - which will probably protect the other assets anyway - and consider it if necessary.  Good luck.


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