Utah has laws that protect life insurance benefits. These laws outline the protections that the state offers in the event you are sued by a creditor or if the insurance company becomes insolvent. You should understand these laws prior to doing business with a life insurance company in the state.
Creditors
Utah provides certain protections under Utah Code section 78-23-6 and 78-23-7 concerning collection attempts by creditors. Utah provides an exemption for death benefits in an amount that is "reasonably necessary" under the law to support your dependents or beneficiaries. Ultimately, the courts would decide how much of the death benefit, if any, would be excluded. Otherwise, Utah provides a maximum exclusion of $5,000 for any interest or benefit you receive from your own policy. In other words, if you own a cash value policy, your exclusion amount would be limited to $5,000 of the cash surrender value of the policy.
Guaranty Association
The Utah Life and Disability Insurance Guaranty Association protects your life insurance policy if the insurance company becomes insolvent. The guaranty association pays a maximum of $300,000 to your beneficiaries if the insurer becomes insolvent at your death. The guarantee association guarantees $100,000 of the cash surrender value of your policy. This guarantee is per person. If you own policies that, collectively, exceed this amount, the excess is not guaranteed.
Benefit
The protections offered to you by Utah provide a safety net for you. This safety net is in addition to the cash reserves established and maintained by the insurance companies doing business in the state. With these protections, you and your beneficiaries won't have to worry about not receiving anything from your policy.
Consideration
Before you purchase a policy in Utah, you should still research a life insurance company. Even with the guarantees in place, you should recognize that the guarantees are limited. Doing business with a financially secure insurer will prevent you from having to go through the hassle of having to make a claim for benefits later on if the insurer fails.
In regards to creditor protections, you may wish to diversify your cash holdings. If you are using your life insurance policy as a way to supplement your retirement income through the use of the cash value feature of some life insurance policies, consider using an IRA or other retirement account. Retirement accounts offer protections from creditors that may limit the amount of money that can be taken from you or totally exclude the account altogether.
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