South Carolina Life Insurance Practice Exam

Which clause protects life insurance policy proceeds from creditors after the insured's death?

1. Spendthrift Clause

2. Mortgage Clause

3. Exclusion Clause

4. Incontestability Clause

The correct answer is: Spendthrift Clause

The Spendthrift Clause is designed specifically to protect life insurance policy proceeds from creditors following the death of the insured. When this clause is included in a policy, it ensures that the benefits paid to the beneficiary cannot be claimed by creditors of either the insured or the beneficiary. This means that even if the insured had debts at the time of death, the policy proceeds are safeguarded and go directly to the named beneficiary without being subject to claims from creditors. Other clauses mentioned have different purposes. The Mortgage Clause relates to the protections for lenders in case of loss to insured property but does not concern life insurance proceeds. The Exclusion Clause outlines specific circumstances under which the insurer will not pay a benefit, such as suicide or fraud, and does not provide protection from creditors. Lastly, the Incontestability Clause typically ensures that after a certain period, the insurer cannot dispute the validity of the policy, but it does not relate to creditor protection regarding the proceeds.