Creditors' Ability to Reach Life Insurance Benefits: Don't Just Pay the Bill!
Jan. 31, 2022
"My husband had a life insurance policy, and we figured that would pay the medical bills and then anything left over would go to our children and me."
Every time a new client says that to me, I breathe a sigh of relief that they talked to me before they started paying creditors with insurance money. Because they may not have to.
Here's why: A Michigan statute - MCL 500.2207.
You do not need to remember the number, but you should remember what section (1) of that statute states:
'Any husband or wife can insure their own life for the benefit of their spouse, and any parent can insure their own life for the benefit of their children, and when they die the resulting benefit is paid to the surviving spouse or child, "free from all claims . . . of any of [the decedent's] creditors."'
This applies to debts a dead spouse or parent owed to any creditor: credit cards, personal loans, lines of credit, utilities, etc. Creditors cannot reach the death benefit proceeds of a life insurance policy of any decedent where the beneficiary is the decedent's wife or child.
There are situations where insurance death benefits received by a surviving spouse or child can be "reachable" by creditors to resolve debts incurred for the benefit of a decedent. These are fact specific and require specific analysis in each situation. For example: if, in order to obtain treatment for a sick spouse, the well (and ultimately, surviving) spouse signs documents agreeing to be financially responsible for the bills for the dying spouse's medical care, the creditor is a creditor of the surviving spouse, not just of the decedent. So, once the insurance benefit proceeds are paid to the spouse, this statute does not protect them from the creditor.
This is one very common scenario where an experienced Michigan probate attorney retained and advising you promptly after your spouse or parent dies can save you thousands of dollars.
Disclaimer: Neither this blog post, nor any of the other blog posts on this site, are intended to serve as legal advice and should not be treated or relied upon as such. They are for informational purposes only, but I hope they help you move forward with reaching out to me, or to another Michigan licensed attorney, to get the help you need to solve problems and reach goals.