West Virginia State Life Insurance Practice Exam

When a life insurance policy owner passes away, the proceeds from the policy are NOT exempt from creditor's claims when payable to whom?

1. The policyholder's family

2. The insured's estate

3. A named beneficiary

4. A trust fund

The correct answer is: The insured's estate

The proceeds from a life insurance policy are typically protected from creditors when they are paid to a named beneficiary or placed in a trust, as these funds are designated to pass directly to the beneficiary and are generally not considered part of the deceased's estate. However, when the life insurance payout is made to the insured's estate, it does not enjoy the same level of protection. The proceeds become part of the estate and may be subject to claims from creditors during the estate settlement process. This means that if the policyholder had outstanding debts, creditors could potentially claim against the life insurance proceeds before any distributions are made to heirs. Therefore, the correct answer reflects that the life insurance proceeds payable to the insured's estate are not exempt from creditor's claims, highlighting a crucial aspect of how life insurance benefits are handled upon the death of the policyholder.