Question

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question # 9:
ted owns a permanent life insurance policy with his wife laura as the life insured and has named himself as the beneficiary. laura dies and ted receives the death benefit from the policy. unfortunately, laura had a lot of creditors and ted is surprised to receive letters from creditors demanding that he clear the debts using the proceeds of the life insurance policy. are the life insurance proceeds protected from lauras creditors?

a) the proceeds are protected because ted is lauras spouse and is, therefore, a preferred beneficiary.
b) the proceeds are not protected because ted, as the policy owner, does not fall under the restricted definition of beneficiary.
c) the proceeds are protected because the policy was owned by ted and not laura.
d) the proceeds are protected because life insurance proceeds are always protected from creditors.
your answer
× the proceeds are protected because life insurance proceeds are always protected from

Explanation:

To determine the correct answer, we analyze each option:

• Option a: Being a spouse doesn't automatically make one a "preferred beneficiary" for creditor protection; this is not the right reasoning.
• Option b: Ted is the policy owner and beneficiary, but the key is policy ownership, not beneficiary type here.
• Option c: Since Ted (not Laura) owned the policy, the proceeds are protected from Laura’s creditors. Policy ownership affects creditor claims.
• Option d: "Always" is incorrect—protection depends on factors like policy ownership, not an absolute rule.

Answer:

c) The proceeds are protected because the policy was owned by Ted and not Laura.