Life Insurance Confusion
Some people are confused about the protection from creditors afforded to life insurance owned by Florida residents. Florida statutes state that cash value of life insurance, in whatever form, owned by the insured is exempt from the owner's creditors. The insurance policy in question must be owned by the same person insured by the policy. For instance, if a husband owns a life insurance policy on the life of his spouse, and the policy has accumulated significant cash value, that cash value is not exempt from the husband's (owner's) creditors. However, if the husband's policy insured his own life the cash value would be protected from creditors under the subject Florida statue.
If the husband owned the policy on his own life, upon the husband's death the death benefit would be protected from the creditors of the husband's estate, but the death benefits paid to individual beneficiaries (spouse, children etc) would not be protected from any creditors of the beneficiaries that existed at the time of the insured's death. Only if the policy were owned, or payable to, an irrevocable life insurance trust with spendtrift language would creditor protection continue after the death of the insured.
Perhaps this is obvious - but you may not get away with protection from creditors if the sole intent behind purchasing the insurance is to protect cash from creditors.
As an example of what *might* happen - in Canada (where I'm from) retirement savings called RRSP's are like 401K's and are creditor proof. Creditors have tried to get money out of people's RRSP and failed. However I believe there was one case years ago where a creditor did actually convince the court to get money our of a creditor proof RRSP. And they did it by showing that the person had jammed money into the investment strictly to avoid paying the creditor. So it's possible that if you stuffed a life insurance policy full of cash just to hide money from a creditor that a reasonable court might give you the gong :).
Confusion? That the beneficiaries are not protected by funds received from a life insurance policy? There is no confusion here. This is what a trust is for!
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