A new law just passed by the Utah State Legislature, which enables people to accumulate cash inside a life insurance policy and have the cash and death benefit be exempt from creditors is an asset-protection tool that can bring financial security and peace of mind to people who utilize it.
Here is an example of how the new law could benefit individuals. Assume that a person has been saving money for many years and holding that money in checking accounts, savings accounts, money market accounts, stock brokerage accounts, stocks, bonds, real estate holdings, or any other number of investments.
Now assume that they are sued as a result of a traffic accident, professional liability, default on a loan, etc. Now assume that the creditor proves they are liable to him, but the amount of the liability exceeds all of their liability-insurance coverage. Predictably, the creditor is going to try to satisfy the remainder of his court judgment from their personal assets.
In Utah, there are not (prior to 2005) very many assets that are exempt from the grasp of a creditor who has a court judgment against you. For example, the exemption for a personal residence is only $20,000 ($40,000 if owned jointly by two persons).
That means that if a home is worth $250,000, a creditor can force its sale and take $230,000 and leave the owner with $20,000. Obviously, Utah's exemption laws have the unfortunate consequence of leaving the person, their spouse, and their dependents virtually bankrupt and broke as the judgment creditor satisfies his claim against the familys assets.
However, this new law is not merely a new life-insurance product for sale. It is a law that needs to be understood before the strategy is implemented. For example, if a person were to start putting money into a life insurance policy knowing that a specific creditor may be pursuing them, that could undermine the exemption and expose the money to the creditor's grasp.
Asset protection is something that well-informed people take advantage of. Readers are encouraged to investigate the benefits of this new law and coordinate this asset-protection strategy with their overall estate-planning to make sure that both are working in full coordination and harmony with each other.
Citizens should be aware there are limiations to the law and that they need to explore their own financial programs.