New Jersey Life Producer Law Practice Test

What are the statements regarding creditors and death benefits?

1. Creditors may attach the death benefits payable to insured's estate

2. Creditors may attach the death benefits payable to an insured's beneficiary only in the case of a third party ownership

3. Creditors may attach the death benefits payable to an insured's beneficiary

4. All of the above

The correct answer is: All of the above

The correct choice encompasses a comprehensive understanding of how creditors interact with death benefits in the context of insurance policies. Creditors may have the ability to attach death benefits payable to the insured's estate because, upon the insured’s death, those benefits become part of the estate's assets. Therefore, if the insured has outstanding debts at the time of death, creditors can claim those benefits to satisfy those debts. When it comes to death benefits payable directly to the beneficiary, there are nuances depending on the ownership of the policy. If the policy is owned by a third party, creditors can indeed attach benefits intended for the beneficiary since those benefits may not be protected once they are disbursed. This right can extend to any situation where the beneficiary is not the policy owner. Moreover, in cases where the death benefits are payable to a named beneficiary and the policy is not structured to protect those benefits from creditors, they may be subject to the claims of creditors, depending on specific legal circumstances, such as the relationship between the beneficiary and the insured or the state laws governing those benefits. Thus, stating that all these scenarios are possible for creditors reflects an accurate understanding of the conditions surrounding death benefits and creditor claims in New Jersey.