Minnesota Life Insurance License Practice Exam

What is the main function of a spendthrift clause in a life insurance policy?

1. To allow beneficiaries to borrow against the death benefit

2. To protect the death benefit from creditors of the beneficiary

3. To ensure investment growth

4. To allow for policy loans

The correct answer is: To protect the death benefit from creditors of the beneficiary

The primary function of a spendthrift clause in a life insurance policy is to protect the death benefit from the creditors of the beneficiary. This clause ensures that the proceeds of the policy, intended for the beneficiary, are not subject to claims by creditors during the times of the beneficiary's financial distress. It essentially safeguards the funds, allowing the beneficiary to receive the full benefit of the policy without the risk of it being seized to pay off debts. When a spendthrift clause is in place, the insurer will pay out the death benefit in a manner that is controlled and protected from any outside claims, providing peace of mind to both the policyholder and the beneficiary. This enables the beneficiary to use the funds as intended, without interference from potential financial obligations. The clause reinforces responsible financial planning and proper use of insurance benefits.