Washington Life Producer Practice Exam

Which clause ensures that life insurance policy proceeds are protected from the beneficiary's creditors?

1. Spendthrift Clause

2. Suicide Clause

3. Incontestability Clause

4. Grace Period Clause

The correct answer is: Spendthrift Clause

The clause that ensures life insurance policy proceeds are protected from the beneficiary's creditors is the Spendthrift Clause. This provision is designed to prevent creditors from claiming the life insurance benefits that are payable to a beneficiary, thereby safeguarding the beneficiary's financial interests. By including a spendthrift provision in the policy, the insurer ensures that any benefits payable upon the death of the insured cannot be seized by creditors to satisfy the beneficiary's debts. This protection is crucial because it allows the beneficiary to receive the full amount of the life insurance benefit without the risk of having it diminished or taken away due to financial obligations or legal judgments against them. The spendthrift clause essentially creates a legal barrier that helps secure the intended financial support for the beneficiary when they need it most. The other clauses mentioned serve different purposes in a life insurance policy. The Suicide Clause specifies the conditions under which the insurer will not pay a death benefit if the insured dies by suicide within a certain timeframe after the policy is issued. The Incontestability Clause limits the time period during which an insurer can contest a policy’s validity based on misrepresentation or fraud, typically after two years. The Grace Period Clause allows the policyholder a specified time to make a premium payment after it is due without losing coverage