In this article we will ask the questions: “Can creditors claim life insurance proceeds in Illinois?, “Who are life insurance beneficiaries?”, and “Are there exemptions that would allow creditors to reach life insurance proceeds paid out to beneficiaries?”
If you or a loved one have debts, you may be wondering if the proceeds from a life insurance policy would be used to pay those debts after death. The good news is that in Illinois, generally, the creditors of the deceased person have no rights against the money paid out by a life insurance policy to the beneficiaries. However, if any proceeds are paid out to the estate, that money may be used to pay off claims, similar to any other asset in the estate.
Life insurance policy beneficiaries can be anyone from your wife and/or children, to your estate or even a non-family member entity. In most cases, a beneficiary is a family member and likely a child or grandchild. The important thing to remember is that the beneficiary is who will be receiving the insurance proceed. And, as mentioned before in regards to the estate being the beneficiary, your choice can have an effect on a creditors claim to the insurance proceeds. Most policies also ask to have a contingent beneficiary named in the even that your first-named beneficiaries do not survive you, OR disclaim your insurance proceeds.
For the most, if the buyer of a life insurance policy does their due diligence when purchasing a policy, the life insurance payouts are straight forward, but below are a few situations when creditors may claim insurance benefits:
All this means that it is important to have your assets organized into the proper vehicle upon death, usually a living trust. For more information on living trusts and naming a beneficiary check out Illinois Revocable Living Trusts Explained and Should My Trustee Be the Beneficiary of My Life Insurance Policy?
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