Updated: 2020-08-26 by
Insurance Exemption Glossary:
Insurance exemptions use a lingo all their own and some familiarity with the jargon is essential to understanding what is exempt.
Three kinds of insurance assets
You may own a property interest in life insurance in three different ways: you may own an unmatured life insurance contract (with no cash value - e.g. a term life insurance policy), you may own cash value in an unmatured life insurance policy (e.g. a whole life policy), and you may, as a beneficiary, be entitled to proceeds from a matured life insurance policy.
"Matured" simply means that the conditions of the policy have have been met. A matured policy is paying proceeds to the beneficiary of the insured.
An unmatured policy is not paying proceeds, but, can still have a current value in two ways:
1. In the case of a "term life" policy, the continued existence of the contract itself can be said to have value, even if it cannot be converted to cash.
2. Other kinds of of policies can have accumulate value over time, and that value that can be borrowed against, or turned into cash if the policy is 'surrendered' (see "avails" below).
Reading insurance exemptions
Many states have unlimited exemptions for insurance proceeds. However, most states offer only limited exemptions for the cash or loan value of an unmatured policy.
A few states, however, offer unlimited exemptions for the cash value of such policies, or policies offered by 'fraternal benefit societies.' In such states, life insurance is often an important component of an overall asset protection strategy.
Avails: Any amount available to the owner of an insurance policy other than the actual proceeds of the policy. Avails include dividend payments, interest, cash or surrender value (the money you'd get if you sold your policy back to the insurance company) and loan value (the amount of cash you can borrow against the policy).
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If there is a judicial lien on your property as a result of a court judgment against you, you may have the right to remove it if it "impairs" an exemption on the property. You must intitiate a special procedure called an "adversary proceeding." You may need a lawyer's help to do this, and you need to make ask your bankruptcy lawyer if they charge extra fees for doing this.