Life Insurance. A Protected Asset

As I mentioned in another post, Life Insurance is not just about dying anymore. The policies today do so much more than they did even 10 years ago. It’s true. Life Insurance is designed to protect us from an untimely death and we’ve also learned that your death benefit can be advanced while you are alive for a Chronic, Critical or Terminal illness. But there’s more.

Several years ago while living in Florida, I came across a physician with a sign posted in his office stating he did not carry malpractice insurance. I thought this was rather odd. We live in a world where McDonald’s pays out millions to a customer who spills hot coffee on themselves. To practice medicine without malpractice insurance seemed like financial suicide to me. I wanted to know more.

With a little research, here is what I found out.

Some assets are considered “exempt” under state and federal law and therefore cannot be reached by creditors. Exempt assets include personal property, such as household furniture, clothing, or jewelry, and tools of a trade or business. In some states, an individual’s primary residence, life insurance benefits, and annuities are considered exempt. Each state has laws shielding owners of corporations, limited partnerships, and limited liability corporations (LLCs) from liability. Additionally, federal law exempts qualified retirement plans governed by the Employment Retirement Income Security Act (ERISA). Qualified retirement plans include pension plans, employee stock ownership plans, profit sharing, and 401(k) plans. Assets to which one does not hold legal title are generally unreachable by creditors. (credit:

This physician decided rather than pay high malpractice insurance premiums, he would take matters into his own hands. He paid cash for a multi-million-dollar home (primary residence), over-funded his cash-value life insurance policy, purchased annuities, and max funded his profit sharing plan every year. If he is sued for malpractice, all they are going to get is the money he keeps in his checking account. That is a heck of a strategy if you ask me.

Who are potential creditors of your assets? We aren’t just talking bill collectors here. If you accidentally run over someone with your car and they win a settlement against you that exceeds the limits of your car insurance policy, they can lay claim to your personal assets. Bankruptcy court, the IRS, even an ex-spouse can become a creditor.

As noted above, each state has its own list of exempted assets and while not all states exempt 100% of the various assets listed above, all states exempt some portion of the various assets listed above. Life Insurance scores again! Call 304.840.0706 to learn more about protected assets in your state of residence.