Hey, I'm Austin Williams. I'm a wealth coach here at Better Wealth. Today, I'm going to be diving into a question that I get semi-frequently here, which is, how much does my state protect life insurance? Now, if you've never heard of this question before, or maybe even heard it asked before, don't sweat it. There's not some glaring thing that you've missed. But this does come up from time to time, and I wanted to put a video together because I think that, once again, depending on the state that you live in, that there are different levels of protections that in a legal sense that are available to the money that is held inside your life insurance policy. So we're going to go into a couple of different things. We're going to start with like, when would this be relevant to you? Like, when does this matter? Also like historically, why is this the case? And then we're going to look at like a state by state basis and look at, okay, you know, where, where are the protections? What, where is it most protected? Where is it least protected? And then we're going to kind of wrap up the video from there. So, just to kind of start us off, is, you know, what, so... When is this relevant? So there's kind of two times when this will be very relevant for you. So if there is a creditor who obtains a judgment against you, or maybe if you filed for bankruptcy. So let's go a little bit into like what happens like in either of those scenarios, regardless of whether you have life insurance or not. So when a creditor obtains a judgment against you, what essentially the court is ruling is that you owe the creditor money, Right. And the creditor now has this. We'll call it a blank check, but they essentially have the right to get money from you. And there's a couple different ways that they can go about doing that. Now they can choose to maybe garnish your wages. Literally money like directly from your paycheck is just going to go to them. Another thing is that they can seize your bank accounts. That's not fun to think about, but they can actually seize the money that's inside some of your bank accounts. The next thing that they can do is they can actually put a lien on your house and this lean would actually prevent you from selling your house until you've paid that lien off. And then fourthly, and this is possibly most appropriately for our discussion today, is that they can seize your assets. And so depending on what the asset is, how much is it worth, they might be able to seize that. Now, this court's kind of come in. Now, they can't necessarily seize the toothbrushes in your bathroom. There's some assets that the court kind of rules is that they're too basic and fundamental for life that it can be taken from you. But some stuff, like maybe like a car or something like that, is that they could actually seize some of those assets. So that is when a creditor obtains a judgment against you. Now, if you are to declare bankruptcy, what you're essentially admitting to the court is that you can't pay your debts. Obviously, this is a very difficult thing to go through. You're asking the court for a fresh start. In return, the court actually appoints a bankruptcy trustee to manage your estate, and they're going to liquidate as many of your assets as they can in order to pay off as much of your debts as you possibly could. So you're not getting out of it scot-free just by declaring bankruptcy. So what does this mean for an asset like life insurance? Now, the hope is, and you'll be glad to know that this is actually what happens in the majority of states, is that life insurance is treated as an exempt asset, or it is something that cannot be seized by creditors or cannot be liquidated by a bankruptcy trustee, is that it has these extra legal protections that are kind of baked in from the get-go now Why does life insurance have these creditor-predator lawsuit protections? And it's actually a really interesting reason is that historically, life insurance was seen as a way to protect your beneficiaries and not really like a personal savings account. Now, we both know, since you're watching this video, that's not true. And like legally, the laws haven't quite caught up to it yet is that it can be both, right? Is it obviously this is life insurance, there's a death benefit as the foundation of it. But there's also this really cool liquid savings tool kind of built on top of it that can function for that way as well. Now, historically, since this was seen as a way to help your beneficiaries, elected officials did not like the optics of taking money from widows and orphans. So they gave extra protections to the money held inside a life insurance policy. And legally speaking, precedence is that bankruptcy can't be so complete as to bring harm to the rest of your family. So the bankruptcy trustee can't liquid literally liquidate everything because ultimately that would bring extra harm. And we've decided as a country that that that's not something we want to get behind. Now courts do try to strike this careful balance of like, okay, if it's a bankruptcy, you guys want a fresh start. We want to honor that. But at the same time, the people who you owe money to, like they deserve maybe at least as much of something as possible. So kind of those things going on now, depending on where you live in the U S uh, this, you know, there could be different outcomes for this. And I'm going to actually switch my screen over right now, um, to a new one. So the same map is actually an interactive map. Um, and it's this great, article on this insurance and estates and I don't necessarily, I don't vouch for everything that's on here, but this map is a very up-to-date one and you can go on here and it's insurance creditor protection by state and you can kind of browse over some of these states and you can see the different protection amounts. Now this one was last updated in March of 2025 and they kind of come around and periodically update it. So this is supposedly pretty recent information. I'll say All of this with a massive caveat of, you know. talk to a lawyer. Don't just trust this interactive map to have the exact complete information if you are searching. If you really want actionable, very, you can take it to the bank, so to speak, talk to a lawyer and ask them whether or not this is true. But depending on where you live in the US, every state affords extra levels of protections to the assets held inside life insurance. And in more than half of all states, it's complete. is total complete exemption. You'll see here with Florida, Florida is kind of the golden standard when it comes to protection of life insurance, is that there's an unlimited amount of exemption amount of the cash value. The cash value of life insurance policy may not be attached by a creditor and the creditors cannot attach if beneficiary of the policy is not insured. It's the same for bankruptcy and creditors. It's just a very, very strong state. Texas, also very strong. There's even places that are kind of surprising that are very strong. Like, you know, Pennsylvania, extremely strong, unlimited. Even New York, of all places, unlimited exemption amount. So there's a lot of states that have this like unlimited exemption amount. And then there's some states that kind of fall in the middle. Like, you know, there's Colorado that only $250,000 of the cash value is exempt. It is the same for bankruptcy and creditors. And then there's like really surprising ones like Arkansas. like it's really low. Unlimited exemption amount, $500 if the attachment is based on a contractual claim, and then the same for bankruptcy and creditors. To be fair, it is actually an unlimited exemption amount. My eyes just kind of went straight to that $500. And then if there's a contractual claim, it's only a $500 exemption. Now, there are some states that are on the low end, and there's particularly two that are like the... that are kind of on the lowest of the low end. And those are Washington, which really doesn't have any exemption amounts, and New Hampshire. So these are states where under state law, and it's very clear here with both of them, it's not provided for. So that means that you're not disincentivized from getting life insurance in either of those states, but there's no extra protections in either of those states if you have them. Now, somewhere in between, there's places like Wisconsin. You know, North Dakota, you know, obviously not a lot. South Dakota, also surprisingly not a lot, but, you know, ton in Montana, unlimited exemption amount in here. It's funny, you know, Washington doesn't have any, but Oregon is unlimited. Idaho is unlimited. Montana is unlimited. It's surrounded by states with very strong levels of protection for insurance. So this is a great tool to use if you ever find yourself wanting to just know a little bit more and just try to get a little bit more insight into it. And I love that. they also include like the code, as you see with Montana, like the code that you would specifically look up. And if you wanted to talk to an attorney, just, you know, bring them that code and say, Hey, you know, what does this mean here in the state of Montana for me? All right. So I'm going to actually go back to my slides here. Yeah. So great, great slideshow. And now I can know what kind of already hear the question from, you know, the other side of the internet is like, what happens if you move to a different state? Let's say you get your policy in like New Hampshire and you move to Montana, right? Well, the cool thing is that the protections actually are specific to the states that you're in. And if you move your life insurance policy and you move, then you gain the protections of the new state. And so, you know, whether that's a good or bad thing, because there's more really well-protected states than there are not so protected states. So just the pure odds, if you move to a different state is that you might be moving to a state with higher protections than moving to a state with lower protections. So, you know, what does this mean for you in the end? Most states have very high protections. And just because you live in a state with fewer protections doesn't mean life insurance isn't a good choice for you. You know, maybe make smart choices outside of your policy. Like, you know, don't try not to get to the point where you have to declare bankruptcy and obviously, ideally, don't do things that would give creditors a reason to get a judgment against you. There's still plenty of good reasons to get life insurance, even if your state doesn't have the highest of high protections. Now, if you move to a state with higher protections, your life insurance is going to be covered by the protections of the new state. And if you're living in a state with low protections, like let's say you live in Washington or New Hampshire and you're worried, consult with an attorney to get more insight in your situation. I will say that even though technically by state law, there's no, like with Washington, New Hampshire, that there's no extra protections, there still are federal protections, and it's very low. It's only $15,000. But you can still claim federal exemptions in either of those two places. So even those technically, even though there's a big fat zero, you can still claim up to that federal level of exemptions, which is $15,000. And I'll say as a last caveat here, and this is something too that's kind of worth exploring, is that if a trust owns your policy, and it was established in a different state with higher protections for life insurance, those protections from the other state should apply to your policy. Huge asterisk here, huge asterisk. I am not an attorney. I'm not telling you that this is what you should do with your policy. But simply put is that if you live in a state with low protections, you want your life insurance to have high protections. If your trust exists outside of your state in a different state with higher protections, it should apply to your policy. Please consult with a local attorney, either in your state or in the other state, before you go ahead with this. I'm not giving you advice. I'm just telling you that this is what people have done in order to get the higher protections for their life insurance. So please consult with an attorney. This is not legal advice. In the end though, overall, there are extra protections that that are very specific to the state. that you live in. And most states have really high protections and that's a really good thing. And this means that you can just rest assured knowing that if something were to happen to you, that the money that you've put into your life insurance is more, more often than not going to be protected by that state and is not going to be able to be, um, a creditor won't be able to seize it and a bankruptcy trustee won't liquidate it. So, um, just extra reassurance, extra peace of mind, because that's ultimately why, like why we get life insurance at the first place is We want peace of mind. We want to know that our legacy is accounted for and that nothing's going to happen to it in the future. Thanks so much.
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