Citation: Stat. - Colo. Rev. Stat. § 10-7-106

� 10-7-106. Exclusive right of insured in proceeds

Whenever, under the terms of any annuity or policy of life insurance, or under any written agreement supplemental thereto, issued by any insurance company, domestic or foreign, lawfully doing business in this state, the proceeds are retained by such company at maturity or otherwise, no person, other than the insured, entitled to any part of such proceeds or any installment of interest due or to become due thereon shall be permitted to commute, anticipate, encumber, alienate, or assign the same, or any part thereof, if such permission is expressly withheld by the terms of such policy or supplemental agreement; and, if such policy or supplemental agreement so provides, no payments of interest or of principal shall be in any way subject to such person's debts, contracts, or engagements nor to any judicial processes to levy upon or attach the same for payment thereof.

ANNOTATION

This section does not exempt annuity contracts from a debtor's bankruptcy estate. The "exemption-like" language in this statute goes to insulating annuity proceeds, not from creditors of the owner of the annuity, but only from creditors of others who may have an economic stake in the annuity, and then, only if the annuity contract so provides. If it does not, then even creditors of an annuity payee or creditors of a death beneficiary can go after annuity proceeds by way of attachment or execution. This statute does not even address limiting the rights of creditors of the debtor annuity owner in this case. It is designed not to protect those with an economic interest in an annuity from their own creditors. Instead, it is designed to uphold limitations on whose creditors an insurer/issuer of an annuity contract must deal with when the annuity contract so provides. In re Besser, 356 B.R. 531 (Bankr. D. Colo. 2007).

This section does not provide an exemption for a bankrupt insured but it does provide an exemption for an annuity payment due a bankrupt beneficiary provided that the proceeds of the annuity are retained and the annuity's express terms withhold the right of the beneficiary to assign or encumber those payments. In re Brown, 387 B.R. 611 (D. Colo. 2008).

This section exempts an annuity from the reach of a beneficiary's creditors if: (1) The entity issuing the annuity or insurance policy retains the proceeds; (2) the annuity or policy has specific language restraining the alienation of proceeds by persons other than the insured or annuity owner; and (3) the person claiming the protection is not the insured or annuity owner. In re May, 478 B.R. 431 (Bankr. D. Colo. 2012).

The intent of the state legislature in enacting this section was to encourage individuals to provide for their families and dependents through life insurance by protecting the insurance proceeds from the beneficiary's creditors so long as the proceeds remain in the hands of the insurance company. This protection was to apply whether the life insurance proceeds are payable in installments or under an annuity plan. In re May, 478 B.R. 431 (Bankr. D. Colo. 2012).

Debtor who was both the annuitant and the annuity owner was not protected by this section. The annuity's protection of proceeds provision protects debtor as a potential "payee" of the annuity benefits. Because debtor is also the owner, however, with the power to assign and surrender the annuity, debtor is not protected by this section, and payments of annuity proceeds are subject to her debts. In re May, 478 B.R. 431 (Bankr. D. Colo. 2012).