by microflyer38 » Fri Jul 13, 2012 06:10 pm
A "friend" of mine who's frantically asking me for money to pay a lawsuit settlement, says she's going to lose her life insurance if she goes jail. I keep trying to tell her to be honest with the judge and tell him she has no assets and practically no savings.
Are there policies out there with such a clause? I know she's had the policy for more than 2 years at least.
I'm trying to find out if she's lying to me to get money because I'm very close to un-friending her.
Are there policies out there with such a clause? I know she's had the policy for more than 2 years at least.
I'm trying to find out if she's lying to me to get money because I'm very close to un-friending her.
Posted: Fri Jul 13, 2012 07:08 pm Post Subject:
The only reason a person would "lose" their life insurance as the result of going to jail is NONPAYMENT OF PREMIUM. It's not any different for people who are not incarcerated.
The basic rule of life insurance: you pay, you die, they pay.
You break the rule by not paying. A cash value policy generally allows the insurance company to take money from the cash value to pay premiums when the policyowner/insured/payor does not. When there is not enough money to pay the next premium when due, the policy lapses for nonpayment of premium.
On the other hand, failure to pay a civil judgment ("lawsuit settlement") does not result in anyone going to jail. One must commit a crime in order to be jailed.
If a person (the judgment debtor) does not pay what they owe under such a civil judgment, the party they owe the money to (the judgment creditor) has to go back to court to obtain other relief, such as property seizure, wage garnishment, etc. I know of no state in the US that does not, by state law, protect the life insurance assets of the judgment debtor from the claims of creditors (including judgment creditors).
Your friend cannot be forced by anyone, including a judge, to take money from her life insurance to pay a debt she owes. She can always decide to do that voluntarily.
If you are willing to assist her by paying some or all of her judgment, and that amount is LESS than her life insurance amount, here's what I would suggest:
Have her execute a "collateral assignment" of the portion of the policy proceeds equal to the amount of money you are loaning her. As she repays the loan, your interest in that assignment reduces $-for-$. Your collateral assignment permits you to force her to keep the policy in force, or gives you the right to pay her premiums in order to keep the policy in force to preserve your collateral claim. If you pay some of the premiums, that will, by your proper accounting/recordkeeping (cancelled checks, etc), increase your collateral claim amount.
If she won't agree to that, then you don't loan her a penny. What you choose to do about your friendship is a separate matter.
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