Which beneficiaries are protected from creditors while the insured is alive?

The protection of beneficiaries from creditors while the insured is alive primarily applies to irrevocable and preferred beneficiaries. In life insurance, an irrevocable beneficiary designation means that the policyholder cannot change the beneficiary without that person's consent. This legal standing helps safeguard the beneficiary's interest in the policy, protecting it from creditors' claims against the policyholder’s assets.

This protection is rooted in the idea that the irrevocable beneficiary has a vested interest in the policy, making it less vulnerable to creditors seeking to settle debts of the insured while they are living. In contrast, revocable beneficiaries can be changed by the policyholder without consent, which does not afford the same level of protection.

Contingent beneficiaries are next in line to receive benefits only if the primary beneficiary is no longer available, and their status does not create a protection from creditors for the insured. Default beneficiaries, who are designated by law when no other beneficiary has been named, do not have the same protective measures in place as irrevocable beneficiaries.

This understanding establishes why irrevocable and preferred beneficiaries retain a level of protection from creditors during the life of the insured, ensuring their interests in the policy are honored even amid the financial challenges faced by the policyholder.