4.7.3 Spendthrift Trust Clause
The spendthrift clause protects life insurance proceeds from creditors. The beneficiary's creditors are prohibited from claiming any of the policy's benefits before the beneficiary is paid. Creditors cannot take legal action in an attempt to force the insurer to pay the proceeds directly to them and not the beneficiary.
Payments are made to the beneficiary in lieu of receiving the policy proceeds in one lump sum. Policy proceeds are held in trust by the insurance company for the beneficiary's future payments. Policy distributions are not assignable or transferable and cannot be attached.
The spendthrift clause prevents the beneficiary from changing the way in which the policy proceeds have been designated for payout. For instance, if the policy states the beneficiary is to receive a certain amount payable over a 15-year period, the beneficiary cannot assign or transfer the proceeds to another party in order to obtain a lump sum payment.
