Life Insurance: An Asset That’s Protected From Creditors
Article revised on 8 June 2017
This article concerns only legislation that applies in Quebec
No one is immune from financial worries. Everyone has them from time to time. But when they force you to declare bankruptcy or work out an agreement with your creditors, it is important to know your rights. Can your Life insurance contract be seized, just like the rest of your property? If you haven’t taken the necessary precautions, it could happen.
Quebec laws provide special protection from the creditors of Life insurance policyholders, as long as they have made an appropriate beneficiary designation. The actual purpose of this protection is to preserve the rights of the beneficiaries by causing the contract to be exempt from seizure by the policyholder’s creditors.
However, in order for the protection to apply, the policyholder must have:
- Designated an irrevocable beneficiary
- Designated certain family members (the policyholder or participant’s husband or wife, spouse through civil union or descendant or ascendant) as beneficiaries.
Once these conditions have been met, the policyholder’s creditors cannot seize the Life insurance contract or force its surrender.
What about de facto (common-law) spouses?
In Quebec, the protection automatically provided to certain family members is available only to spouses who are married or in a civil union together. Therefore, a de facto spouse must be designated as an irrevocable beneficiary for the Life insurance contract to be considered exempt from seizure.
It is important to know that an irrevocable designation of beneficiary may not be revoked by the policyholder with the beneficiary’s prior consent.
To find out if your Life insurance contract is exempt from seizure, give your financial security advisor a call at 1 855 896-9495.
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