Question 3

Creditors have rights to life insurance policy proceeds when the beneficiary is the insured's estate.

When the beneficiary of a life insurance policy is the insured's estate, creditors have the right to claim the proceeds to satisfy debts owed by the insured. This is because the life insurance benefits become part of the estate and are accessible to creditors during the probate process.

A) insured's child.

If the beneficiary is the insured's child, the life insurance proceeds are typically protected from the insured's creditors. The proceeds go directly to the child and do not enter the insured's estate, thereby shielding them from claims by creditors.

B) insured's estate.

When the beneficiary is the insured's estate, the life insurance proceeds become part of the estate's assets. This allows creditors to access these funds to settle any outstanding debts the insured had before their death, making this option correct.

C) insured's spouse.

Life insurance proceeds paid to the insured's spouse are also generally protected from creditors. Similar to a child, the spouse would receive the funds directly, and they would not be considered part of the insured's estate for creditor claims.

D) insured's business partner.

If a business partner is named as the beneficiary, the insurance proceeds would typically be paid directly to that individual. Therefore, the proceeds would not be subject to the insured's creditor claims, as they do not become part of the estate.

Conclusion

The correct answer is B because when the beneficiary is the insured's estate, creditors can claim the life insurance proceeds to cover any debts. All other options fail to provide creditors with access to the funds, as the proceeds go directly to individuals rather than entering the estate.