Asset protection · A PPLI advantage
What PPLI changes about who can reach your wealth
A judgment reaches a brokerage account. In many states it does not reach the cash value of a life insurance policy, provided the policy was funded before the trouble started. That statute is the advantage. It is real, it depends on where you live, and it does nothing against the tax authority or a spouse.
Scope: this page covers United States state exemption statutes and the carrier's segregated-account rules. Outside the US the protection comes from different law (for example the carrier domicile's segregated-account regime and the family's home-country creditor and heirship rules); see the jurisdiction pages or the local-language editions of this page.
Cash value a creditor can reach, policy funded before any claim
FloridaNone
TexasNone
DelawareNone
CaliforniaAbove $17,525
New YorkDepends on the beneficiary
Fla. Stat. §222.14; Tex. Ins. Code §1108.051; 10 Del. C. §4915; CCP §704.100; N.Y. Ins. Law §3212. Set out below.
In one minute
Why a judgment reaches an account and, in many states, not a policy
01
Without PPLI
An investment account is property, and property answers for debts. Anyone who wins a judgment against you can garnish it. Nothing about the account stands in the way.
02
With PPLI
Most states put the cash value of life insurance beyond the reach of the insured's creditors, some with no dollar limit at all. A PPLI contract is life insurance, with an entire investment portfolio inside it.
03
The catch
The protection is your state's, so it changes when you move. It covers money placed in the policy before any claim existed. And it does nothing against the tax authority, a divorcing spouse, or a judgment that already exists.
Six situations, and what a claimant can reach
The same wealthy family, twice. Three of the six come out the same in both columns, and they are marked, because a structure sold on the promise that they do not is the kind that ends up in a judgment.
A business partner wins a judgment, and you live in Florida
Without PPLI
Your brokerage and bank accounts can be garnished to satisfy it.
With PPLI
The cash value of a policy on a Florida resident is not liable to attachment or garnishment for any creditor of the insured, with no cap, if funded before the dispute.
You move from Houston to Los Angeles
Without PPLI
An investment account is reachable in both states. Nothing changes.
With PPLI
Everything changes. Texas fully exempts cash value. California protects only 17,525 dollars of loan value. The protection travels with your domicile.
The institution holding the money fails
Without PPLI
You rely on your bank or broker's custody and segregation rules, which is the ordinary position.
With PPLI
The assets sit in a separate account the insurer's other creditors cannot touch. One caution from FWU's liquidation: priority over a pool that is too small is not a recovery. Choosing the carrier is the real work.
No difference
The Internal Revenue Service assesses tax
Without PPLI
The federal tax lien attaches to everything you own.
With PPLI
The same. United States v. Bess held that the lien attaches to cash surrender value, and state exemptions are inoperative against it.
No difference
You divorce
Without PPLI
Marital property is divided.
With PPLI
The same. A spouse is not a creditor, and a policy bought with marital funds is a marital asset. Only a marital agreement changes what a court divides.
Worse than nothing
You fund the policy three weeks after being sued
Without PPLI
Moving money between your own accounts changes nothing.
With PPLI
A transfer made to hinder a creditor is voidable for four years, two in bankruptcy, and the policy becomes the claimant's best evidence. Everything here is built for risks that have not yet materialised.
Who can see the policy in the first place, as distinct from who can reach it, is on our page on privacy and confidentiality. Keeping the proceeds out of your estate is a separate question again, on estate planning.
The creditor's path, in your own situation
Pick where you live, who is coming, when the policy was funded and who owns it. The tool answers with the statute that decides, the timing question, and what the policy would not do for you. It runs in your browser and sends nothing anywhere.
Creditor's path
Which door does a claimant have to get through?
Where you live
FloridaTexasNew YorkDelawareCaliforniaAnother state
Who is coming
A judgment creditor from a business disputeThe Internal Revenue ServiceA divorcing spouseA bankruptcy trustee
When the policy was funded
Years before any claim existedAfter a claim was threatened or filedWithin two years of a bankruptcy filing
Who owns the policy
YouAn irrevocable trust you settled earlier
A map of which statute answers first, not legal advice and not a prediction about any claim. Exemption statutes change and differ in detail; every line here is set out with its source below, and your own counsel's reading of your own state's statute is the one that counts.
Protection assessment
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Confidential. Never shared.
The word does two different jobs
Two calls arrive in the same month. In the first, someone is coming for the family: a judgment creditor, a regulator, a former business partner, a plaintiff in tort. In the second nobody is coming for anybody, and the worry is whether the carrier will still be standing in five years. We answer those two calls out of different books.
The first is adversarial and it is domestic. Whether the claimant gets there turns on the exemption statute of the owner's home state and on the fraudulent transfer rules of the forum, with the equitable powers of the court sitting behind both. The wrapper matters here only so far as a statute says it does.
The second is impersonal. The carrier becomes insolvent, and what the policyholder needs to know is whether the assets backing the contract fall into the carrier's estate to be shared out among its other creditors. Insurance supervision law and the winding-up rules of the carrier's home jurisdiction answer that. State exemption statutes have nothing whatever to say about it.
Why the distinction is not academic
Here is the point a family's existing adviser most often has wrong, and we say this without much pleasure because they are usually good lawyers. A competent private client solicitor, one who would never misstate a trust point, can still describe the Luxembourg triangle of security to the client as though it were a creditor shield. It is addressed to the carrier's insolvency. The plaintiff in Miami remains a question of Florida law and always was. The same error runs the other way, too: a family relies on a Florida or Texas exemption and takes it as some sort of statement about the quality of the underlying portfolio, when all it establishes is that a class of asset sits beyond a class of process. Both exposures have to be specified separately, and both have to be specified before anything is happening.
Segregated accounts and what they do when a carrier fails
When a carrier fails, one question decides most of the outcome for the policyholder: do the assets behind the contract fall into the estate, or do they sit to one side of it? In the jurisdictions covered here they sit to one side, and they do so by statute rather than by arrangement.
Delaware states the principle plainly: that portion of a separate account's assets equal to the reserves and other contract liabilities of the account "shall not be chargeable with liabilities arising out of any other business the insurer may conduct" (18 Del. C. §2932). Bermuda arrives at the same result through registration, under section 17 of the Segregated Accounts Companies Act 2000.
Luxembourg
Luxembourg's arrangement is the most fully documented of them. Under the Law of 7 December 2015 on the insurance sector, assets representing technical provisions must be deposited with a custodian approved by the Commissariat aux Assurances under a tripartite deposit agreement (Article 117). Those assets constitute a patrimoine distinct (a separate estate) over which insurance claims carry a privilege (Article 118), and which the regulator has the power to block. Policyholders rank ahead of the State, social security bodies, employees and shareholders. That is the triangle of security: insurer, custodian bank, supervisor.
Its first real test was FWU Life Insurance Lux S.A. The Commissariat froze the matching assets in July 2024 and a Luxembourg court ordered the company's dissolution and compulsory liquidation in February 2025. The machinery worked. Policyholders did not come out whole, because the segregated assets were smaller than the liabilities they were meant to secure, and ranking first over a pool that is too small gives you priority in a distribution rather than a recovery.
We are not going to pretend the profession is of one mind about what FWU demonstrated. Some practitioners read it as straightforward vindication: the freeze happened quickly, the privilege held, the ranking was respected and nobody had to litigate the basic architecture. Others read it as evidence that the architecture was never the exposure in the first place, and that the real work is carrier selection and ongoing scrutiny of coverage ratios, which is a duller discipline and harder to sell. Both readings survive the material that is currently public. The liquidation is not finished, and anyone offering a settled view of what it proves is ahead of the evidence.
Liechtenstein
Liechtenstein is an EEA state, so Solvency II applies: Article 275 of Directive 2009/138/EC requires member states to give insurance claims either absolute precedence over the assets representing technical provisions, or precedence over the whole of the insurer's assets subject to four narrow exceptions. A second and quite different protection operates at contract level. Under Article 78 of the Insurance Contract Act, where the policyholder's spouse or descendants are the beneficiaries, neither the beneficiary's claim nor the policyholder's is subject to execution in favour of creditors or to the bankruptcy of either, subject to any pledges; Article 79 substitutes those beneficiaries into the contract at the moment execution or bankruptcy begins. Article 80 expressly preserves creditors' avoidance actions, and in a contested matter that is the provision doing most of the work. The beneficiary designation, and its date, are worth checking before anyone gets enthusiastic about Article 78.
What US exemption statutes actually cover
There is no American rule on life insurance and creditors. There are fifty-odd of them, they differ in kind rather than in degree, and which one governs follows the owner's domicile rather than the place the policy was issued.
Florida exempts the cash surrender value of policies issued on the lives of its citizens or residents, with no dollar cap, unless the policy was effected for the benefit of the creditor in question (Fla. Stat. §222.14). Texas goes further. Cash value and proceeds there are "fully exempt" from garnishment, attachment, execution or other seizure, and from a demand in the bankruptcy of the insured or beneficiary (Tex. Ins. Code §1108.051), subject only to three exceptions: a premium paid in fraud of a creditor, a debt secured by a pledge of the policy, and a child support lien (§1108.053).
New York is drafted differently and gets misread with some regularity. Section 3212(b)(1) entitles a third-party beneficiary to the proceeds and avails of a policy as against the creditors, trustees in bankruptcy and receivers of the person who effected the insurance, and "proceeds and avails" is defined to include cash surrender and loan values (N.Y. Ins. Law §3212). The protection is framed throughout as something belonging to the beneficiary. An owner who has kept the right to surrender should read it with that in mind.
Then Delaware. We will be blunt about this one, because it comes up far more often than it has any business coming up. The exemption at 18 Del. C. §2725 was repealed in 2018. It is now 2026, and we still receive memoranda citing it, sometimes from firms with letterheads that ought to guarantee better, and occasionally with 18 Del. C. §2932 produced as the replacement, which is the separate accounts provision and does precisely nothing for an individual debtor facing execution. The operative provision is 10 Del. C. §4915, exempting from execution or attachment assets held or amounts payable under any life insurance or annuity contract, save for a judgment obtained under 30 Del. C. §554. It took someone about four minutes to establish that, and it has been true for eight years.
California sits at the other end of the range entirely. Unmatured policies are exempt, but their loan value only up to an indexed aggregate under Code of Civil Procedure §704.100: $17,525 with effect from 1 April 2025. A client who moves from Houston to Los Angeles has changed his answer completely, and it is rarely raised at the time, because moving house is not an event that anybody thinks to run past the structuring adviser.
The 730-day rule
In bankruptcy, the state exemptions available are those of the place where the debtor was domiciled for the 730 days preceding the petition (11 U.S.C. §522(b)(3)(A)).
Which means that the client who telephones three weeks before a filing to ask what can be done has, in the ordinary case, telephoned about two years late. He should be told so. It is a short conversation and not a comfortable one, and it is a great deal better than the alternative, which is a long conversation with a trustee.
Timing, and the law of voidable transfers
Almost every structure that comes apart comes apart on timing. The law asks more than whether a transfer was lawful when it was made. It asks what the transferor knew, and what was already on its way towards him.
The Uniform Voidable Transactions Act, successor to the Uniform Fraudulent Transfer Act, supplies the framework in most US states. A transfer is voidable if made with actual intent to hinder, delay or defraud any creditor, and intent is inferred from eleven statutory badges: transfer to an insider, retained control, concealment, a suit threatened or begun before the transfer, consideration not reasonably equivalent, insolvency at or shortly after the transfer, and others. Funding a policy once a claim has surfaced lights several of them at once.
The look-back runs longer than most people assume. A claim under the actual-intent limb must generally be brought within four years of the transfer or, if later, within one year after it was or reasonably could have been discovered. In bankruptcy the trustee has two years under 11 U.S.C. §548(a)(1), and ten years for a transfer to a self-settled trust or similar device made with actual fraudulent intent (§548(e)(1)).
Several states legislate specifically against conversion into exempt form. Florida provides that a conversion whose effect is to render proceeds exempt is itself a fraudulent asset conversion if made with intent to hinder, delay or defraud, whether the creditor's claim arose before or after, with a four-year limitation period (Fla. Stat. §222.30). Texas excepts any premium payment made in fraud of a creditor (§1108.053(1)). New York preserves every remedy under its Debtor and Creditor Law against a transfer made with actual intent to defraud (§3212(e)(1)).
Exemption statutes therefore operate underneath the transfer rules rather than above them. One policy, funded while the sky is clear, is protected by §222.14 or §1108.051; the identical policy, funded once the weather has turned, is a voidable transfer that happens to be denominated in insurance. The paperwork looks the same in both cases, which is why threatened and pending claims should be asked about at the first meeting, before anything about portfolios or carriers, and why the answer should be given in writing.
What a wrapper cannot do
We would rather have this part of the conversation early than under a subpoena. PPLI answers a number of problems well and a number of others not at all, and the second list is the one worth reading before the premium is paid.
It will not undo a judgment, and it will not launder conduct
Nothing set out above assists a debtor who already has a judgment against him, or whose conduct was itself fraudulent. Where the claim already exists, moving money into a policy supplies the claimant with evidence. Everything here is built for risks that have not yet materialised.
A US court can order the assets brought back
A US court's power over a person does not stop at the water's edge. In FTC v. Affordable Media, LLC, 179 F.3d 1228 (9th Cir. 1999), the Andersons put the proceeds of a telemarketing scheme into a Cook Islands trust containing a duress clause designed to strip them of control the moment a US court intervened. The district court ordered repatriation. They pleaded impossibility, were held in civil contempt, and went to jail. The Ninth Circuit observed that their inability to comply with the repatriation order was the intended consequence of their own arrangements. The situs of the assets did very little for them, because the order ran against the people, and the people were sitting in the courtroom.
Tax claims stand on different ground
A federal tax lien arises upon all property and rights to property belonging to the taxpayer (26 U.S.C. §6321). In United States v. Bess, 357 U.S. 51 (1958), the Supreme Court held that the lien attaches to the cash surrender value of a life policy during the insured's lifetime, and that state law is inoperative to prevent the attachment of a lien created by federal statute. Levy is narrower, though not by much: §6334(c) exempts nothing from levy beyond the closed list in §6334(a), and life insurance cash value does not appear on it.
Divorce generally sits outside the exemption
A spouse in a matrimonial proceeding does not come at the assets as a creditor, which is the point at which most of the exemption analysis stops being any use. Florida treats assets acquired during the marriage, and the enhancement in value of non-marital assets through marital effort or funds, as marital assets subject to equitable distribution (Fla. Stat. §61.075). Some legislatures carve family claims out expressly; Texas excepts a child support lien (§1108.053(3)). A policy has never been a substitute for a marital agreement and we would not present it as one.
And it will not conceal anything
Cross-border exchange of information is routine now, and a structure that only holds together while nobody is looking will not survive its first properly drafted discovery request. The working test we apply is whether the arrangement still reads well when described accurately to a court, to a revenue authority and to a spouse's counsel. That is not a demanding standard, and a surprising number of arrangements do not clear it.
The other thirty-nine states, statute by statute
Five states are set out in detail above. The statutes of the rest sort into four patterns, and the pattern a state falls into tells you more than its reputation does. Every entry below is a research starting point with its primary authority linked, not a conclusion: these statutes are amended, dollar figures change or are indexed, courts read the same words differently, and none of it substitutes for current advice from counsel in the state concerned. No outcome here is guaranteed.
Cash value protected outright
Michigan exempts proceeds, including cash value, from creditors (Mich. Comp. Laws §500.2207), and Oklahoma protects policy proceeds and cash values broadly (Okla. Stat. tit. 36, §3631.1). With Florida and Texas, those two make up the group in which a policy owner stands strongest. Kansas exempts the policy and its reserves broadly, with an exception for recently paid premiums (Kan. Stat. Ann. §40-414); Kentucky exempts both the beneficiary's proceeds and the owner's interest in the policy (Ky. Rev. Stat. Ann. §304.14-300); Mississippi protects proceeds, cash surrender and loan values, with a cap on the value attributable to premiums paid in the previous twelve months (Miss. Code Ann. §85-3-1; §85-3-11); and Oregon exempts cash value where the owner is not their own beneficiary, and protects proceeds where the beneficiary is neither the owner nor the insured (Or. Rev. Stat. §743.046). Florida's cash value rule at §222.14 has a companion for death proceeds: Fla. Stat. §222.13 protects them unless the policy is payable to the insured or the estate. The Mississippi twelve-month rule and the Kansas premium exception are the idea Texas states at §1108.053(1). Money put in on the eve of a claim is treated differently from money that has been there for years.
The beneficiary's proceeds and avails, on the New York model
A second group drafts the protection the way New York does, as something belonging to the beneficiary rather than the owner. Connecticut (Conn. Gen. Stat. §38a-453), Idaho (Idaho Code §41-1833), Louisiana (La. Rev. Stat. Ann. §22:647), Massachusetts (Mass. Gen. Laws ch. 175, §125) and Washington (Wash. Rev. Code §48.18.410) protect the beneficiary's interest in proceeds and avails from creditors. New Jersey (N.J. Stat. Ann. §17B:24-6), Rhode Island (R.I. Gen. Laws §27-4-11) and Virginia (Va. Code Ann. §38.2-3122) do the same on the condition that the beneficiary is neither the owner nor the insured; New Hampshire protects the beneficiary's proceeds unless they are payable to the insured's estate (N.H. Rev. Stat. Ann. §408:2); Indiana protects benefits where the contract itself so provides (Ind. Code §27-2-5-1); and North Carolina protects the beneficiary's proceeds from the insured's creditors, subject to conditions, on constitutional as well as statutory footing (N.C. Const. art. X, §5; N.C. Gen. Stat. §58-58-115; §1C-1601). What we say about New York applies to all of them. An owner who has kept the right to surrender, and who is his own beneficiary, is not the person these statutes were written to protect.
Proceeds payable to family only
A third group protects proceeds only when they are payable to a spouse, child, parent or dependent. Hawaii (Haw. Rev. Stat. §431:10-232), Illinois (215 ILCS 5/238(a); 735 ILCS 5/12-1001), Maryland (Md. Code Ann., Ins. §16-111), Tennessee (Tenn. Code Ann. §56-7-203), West Virginia (W. Va. Code §33-15-6), Wisconsin (Wis. Stat. §815.18) and Wyoming (Wyo. Stat. Ann. §26-15-124) are drafted this way, and Ohio's §3911.10, cited in the sources below, belongs with them. Pennsylvania protects proceeds payable to a spouse, child or dependent relative and otherwise allows only a low monthly amount (42 Pa. Cons. Stat. §8124(c)). South Carolina protects family-beneficiary proceeds and cash values but gives the owner's own interest only a low-dollar exemption (S.C. Code Ann. §15-41-30; §38-63-40). Iowa caps the exempt death benefit for a spouse, child or dependent (Iowa Code §627.6); Nebraska caps proceeds and cash value and conditions the exemption on the beneficiary's relationship to the insured (Neb. Rev. Stat. §44-371); Utah gives support-based protection to proceeds paid to a spouse or dependent and a low-dollar exemption to the owner's interest (Utah Code Ann. §§78-23-6, 78-23-7); Vermont exempts the owner's unmatured policy, other than credit life, and protects dependent beneficiaries (Vt. Stat. Ann. tit. 12, §2740; tit. 8, §3706); and Maine protects the beneficiary's proceeds while giving the owner's unmatured policy only a low cap on dividends and loan value (Me. Rev. Stat. tit. 22, §2428; tit. 14, §4422). In each of these the beneficiary designation, and its date, is the first document to read.
Caps that are irrelevant at PPLI scale
The last group caps the exemption at figures that do nothing for a policy of the size this site is concerned with. The District of Columbia allows a modest monthly amount (D.C. Code §15-503). Georgia exempts the owner's interest in the policy but puts a low cap on dividends, interest and loan value (Ga. Code Ann. §44-13-100), and Missouri does the same for an unmatured policy where the insured is the debtor or a dependent (Mo. Rev. Stat. §513.430). Minnesota caps the exempt proceeds for a spouse or child, adjusts the cap for dependents and caps loan value separately (Minn. Stat. §61A.12; §550.37). Montana protects the beneficiary's proceeds and gives an unmatured contract a low-dollar exemption (Mont. Code Ann. §25-13-609; §33-15-511); Nevada protects the beneficiary's proceeds and limits the owner's exemption by reference to premiums paid (Nev. Rev. Stat. §687B.260; §21.090); North Dakota sets per-policy and aggregate caps, with some flexibility for support and conditions on family beneficiaries (N.D. Cent. Code §28-22-03.1; §26.1-33-40); and South Dakota's caps depend on whether the proceeds go to the estate or to a spouse or children (S.D. Codified Laws §43-45-6; §58-12-4). California, with its indexed loan-value cap, belongs here too. In these states the wrapper adds little on its own, and moving after a claim has arisen does not reset the analysis. One reading cuts across the groups: in several states the courts have read broad statutory language to cover cash surrender value during the insured's life, not only death proceeds, and for a policy whose value is mostly the investment account that is the reading that matters. Where you are domiciled is not a detail of this strategy. It largely is the strategy.
One more federal provision
The federal exemptions at §522(d)(7) and (d)(8) are set out in the sources below. A third belongs with them: §522(d)(11)(C) protects proceeds a debtor receives as beneficiary, to the extent reasonably necessary for support. Useful, and not where meaningful protection lives for a policy of PPLI scale. State law is. Bankruptcy also carries a consequence beyond avoidance of the transfer: in cases of abuse, denial of discharge.
Ownership, and why the trust does the structural work
Because the exemptions are so uneven, a serious plan rarely rests on them alone. The second layer is ownership. Place the policy in a properly drafted irrevocable trust with spendthrift provisions and a creditor of the insured faces two independent obstacles: the insurance exemption, and the fact that the insured no longer owns the asset at all. Trust ownership also keeps the death benefit outside the taxable estate, which is why the pairing of an irrevocable life insurance trust with PPLI recurs throughout planning for large estates. Two variations extend the idea. A minority of states, Delaware, Nevada, South Dakota and Alaska among them, permit self-settled asset protection trusts in which the person who funds the trust may remain a discretionary beneficiary; the ten-year look-back at §548(e)(1), described above, applies to exactly that device where the transfer was made with actual intent. And some families use non-US trust jurisdictions, which apply their own fraudulent-transfer standards and do not automatically enforce US judgments, subject to everything Affordable Media establishes about a court's power over the person in front of it. Each carries its own costs, reporting duties and litigation history. We examine the combinations in asset protection strategies for UHNW families and, for international structures, in cross-border asset protection with offshore trusts and PPLI. The candid ordering is this: trust design does the heavy structural work, and the insurance exemption is a valuable additional layer, strongest in the states that drafted it broadly.
Three further limits
Three items belong with the list of what a wrapper cannot do. Federal criminal forfeiture, like the federal tax lien, is not bound by state exemption statutes. The separate account insulates you from the carrier's creditors and not from the performance of the assets inside the policy; a loss inside a protected policy is still a loss. And an exemption shelters an asset without defending a lawsuit, so umbrella and professional liability cover still do work that nothing on this page does. The same goes for timing, stated once more because it is the point on which structures fail: a premium paid into an exempt policy on the eve of a judgment is a classic badge of fraud, and the exemption will not save it. An adviser who suggests funding a policy to deal with a problem that has already arisen is proposing something that will likely fail and may compound the underlying liability.
Frequently asked questions
Does PPLI protect assets from creditors?
It can, against a future creditor, in a state whose statute exempts the cash value of life insurance, and only for money placed in the policy before any claim existed. Florida Statutes section 222.14 and Texas Insurance Code section 1108.051 exempt cash value without a dollar cap. Other states protect far less, and California caps the protected loan value at 17,525 dollars. The protection comes from the statute, not from the contract, so it depends on where you live.
Is a PPLI policy protected from lawsuits?
A policy funded years before a lawsuit, in a state that protects cash value, is generally beyond the reach of a judgment creditor of the insured. A policy funded after a claim has been threatened or filed is a voidable transfer under the Uniform Voidable Transactions Act, and Florida section 222.30 treats converting assets into exempt form with that intent as a fraudulent conversion. Timing decides more than structure does.
Can the IRS reach a life insurance policy?
Yes. The federal tax lien under section 6321 attaches to all of a taxpayer's property, and in United States v. Bess the Supreme Court held that it attaches to the cash surrender value during the insured's lifetime. State exemption statutes are inoperative against a federal statutory lien, and cash value is not on the closed list of assets exempt from levy in section 6334.
Does PPLI protect assets in a divorce?
No. A spouse is not a creditor, so exemption statutes do not apply, and a policy bought with marital funds is a marital asset subject to division like any other. Florida section 61.075 is representative. Only a marital agreement changes what a court divides.
What happens to a PPLI policy in bankruptcy?
The exemptions available are those of the state where the debtor was domiciled for the 730 days before filing, under 11 U.S.C. section 522(b)(3)(A), or the federal exemptions at section 522(d)(7) and (d)(8) where they apply. A trustee can avoid transfers made within two years under section 548(a)(1), and reach back ten years under section 548(e)(1) for transfers to a self settled trust or similar device made with actual intent to hinder, delay or defraud.
Does it matter which state I live in?
It decides the answer. Texas fully exempts cash value and proceeds, Florida exempts cash value without a cap, New York protects the proceeds and avails for a third party beneficiary, Delaware exempts amounts under any life insurance contract under title 10 section 4915, and California protects only a capped loan value. The protection travels with your domicile, so a move from Houston to Los Angeles changes the position completely.
What happens if the insurance company fails?
The assets backing the contract sit in a separate account that the insurer's other creditors cannot reach: Delaware Code title 18 section 2932, Bermuda's Segregated Accounts Companies Act 2000, and Luxembourg's Articles 117 and 118 with the priority Solvency II Article 275 requires. That is protection against the carrier's insolvency, not against your own creditors. As FWU's liquidation showed, ranking first over a pool that is too small gives priority in a distribution rather than a full recovery, so carrier selection is the real work.
When does a policy need to be funded to be protected?
Before any claim exists, and ideally years before. The exemption statutes protect money already in the policy when a creditor arrives. A transfer made after a claim is threatened is open to challenge for four years under the Uniform Voidable Transactions Act, or one year after discovery, and for two years in bankruptcy. Nothing on this page assists a debtor who already has a judgment against them.
Does owning the policy through a trust add anything?
Yes. A properly drafted irrevocable trust with spendthrift provisions gives a creditor of the insured two independent obstacles: the state insurance exemption, and the fact that the insured no longer owns the asset at all. It also keeps the death benefit outside the taxable estate. Delaware, Nevada, South Dakota and Alaska are among the states that permit self settled asset protection trusts, in which the person funding the trust remains a discretionary beneficiary, and a transfer to such a trust made with actual intent to hinder, delay or defraud can be reached for ten years in bankruptcy under section 548(e)(1). Trust design does the structural work; the exemption is the additional layer.
Which states protect cash value with no dollar cap?
Florida, Texas, Michigan and Oklahoma protect cash value with no dollar cap, which is the strongest position for a policy owner. A second group protects the beneficiary's proceeds and avails rather than the owner's interest, a third protects only proceeds payable to a spouse, child or dependent, and a fourth caps the exemption at amounts that are irrelevant at PPLI scale. Two policyholders with identical policies can face opposite outcomes on domicile alone, and moving states after a claim has arisen does not reset the analysis.
Sources and authorities
Creditor protection for life insurance is a matter of state law in the United States, and it varies materially between states. Nothing on this page should be read as a guarantee of protection in any particular jurisdiction or against any particular claim. The sources below are the statutory starting points.
- Fla. Stat. § 222.14, "Exemption of cash surrender value of life insurance policies and annuity contracts from legal process". The cash surrender values of policies on the lives of Florida citizens or residents are not liable to attachment, garnishment or legal process in favour of any creditor of the insured, unless the policy was effected for the benefit of that creditor.
- Ohio Rev. Code § 3911.10, "Exemption of proceeds from claims of creditors", under which contracts of life insurance taken out for the benefit of a spouse, children or dependants are held, with their proceeds or avails, free from all claims of the creditors of the insured.
- These two are illustrative, not exhaustive. Every state legislates its own exemption, the scope differs, and several protect only proceeds rather than cash value. The applicable statute is the one in the debtor's state, and it must be read in full.
- 11 U.S.C. § 522, "Exemptions", the federal bankruptcy exemptions. § 522(d)(7) exempts an unmatured life insurance contract owned by the debtor, and § 522(d)(8) exempts the debtor's interest in its accrued dividend, interest or loan value up to a capped amount, adjusted periodically. Debtors in opt-out states use their state exemptions instead.
- 26 U.S.C. § 817(h) with 26 C.F.R. § 1.817-5: a policy that fails the diversification requirement is not treated as life insurance at all, and the protections that depend on that characterisation fall away with it.
Last reviewed 19 August 2026. This page is educational and is not legal, tax or insurance advice. See our editorial standards for how we source and correct this material.
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Checked against primary sources. Statutes, regulations, rulings and case law are linked in the text so any statement here can be read against the authority it rests on.
Last updated 2 September 2026
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