Non-Insured Owner

• The cash value of the life insurance policy may become part of the estate, depending on the loan value and the state regulations. The amount subject to creditors varies from state to state, but in many cases, it’s the amount of loan value. In Delaware, as long as the owner didn't pay premiums with intent to defraud creditors and the proceeds benefit another person, the cash value is protected from attachments by creditors. Other states are not as liberal. However, if the non-insured owner named a contingent owner, the life insurance policy automatically transfers to the new owner’s name and becomes his property at the owner's death, not a probate asset available to satisfy debt owed by the owner.
  
  

Insured/Owner

• Life insurance is an asset that belongs to the owner while the insured is alive. At the point of death, the proceeds of a life insurance policy owned by the insured may be part of the estate and subject to claim by creditors of the insured, or it may not. If the insured named the estate his beneficiary or had no beneficiary, the proceeds become part of the estate and subject to claims of the insured’s creditors. If the IRS is one of the creditors, there is a potential it can attach the proceeds.
  
  

Insured/Owner with a Named Beneficiary

• At the point of death, the proceeds of a life insurance policy belong to the named beneficiary. That means the proceeds are not attachable to pay any debt owed by the insured/owner. If the insured/owner had no named beneficiary or the beneficiary was the estate, then the life insurance belongs to the estate and any creditor can claim the proceeds to satisfy a debt.
  
  

Predeceased Beneficiary

• If the insured was also the owner and the beneficiary predeceases the insured, the proceeds go to a contingent beneficiary. If there was no contingent beneficiary, the money goes into the estate of the insured. In that case, creditors such as the IRS can attach the proceeds to satisfy the debt.