South Carolina Life Insurance Practice Exam

Which statement is true concerning creditors of the deceased insured?

1. They have no rights to the proceeds

2. They can claim proceeds without evidence of assignment

3. They have rights to the proceeds if valid assignment is shown

4. They can only claim if the policy is term insurance

The correct answer is: They have rights to the proceeds if valid assignment is shown

The true statement regarding creditors of the deceased insured is that they have rights to the insurance proceeds if a valid assignment is shown. When a life insurance policy is assigned to another party, such as a creditor, that party gains a legal claim to the insurance proceeds upon the death of the insured. This is important because creditors may seek repayment of debts owed by the deceased, and a valid assignment creates a legal obligation for the insurance company to pay the proceeds to the assigned creditor rather than the estate or beneficiaries. In the context of life insurance, an assignment can either be absolute, where all rights are transferred permanently, or collateral, where rights are transferred only for the purpose of securing a debt. In either case, showing that a valid assignment exists allows creditors to access the life insurance proceeds when the insured passes away, reinforcing their right to claim against the policy. Understanding this aspect is crucial as it emphasizes the importance of having proper documentation and legally binding assignments when determining the entitlements of creditors in relation to insurance proceeds.