Massachusetts Life Producer Practice Exam

Which life insurance policy provision prevents a beneficiary from accessing the proceeds before actual receipt from the company?

1. Spendthrift Clause

2. Beneficiary Assignment Clause

3. Right of Withdrawal Clause

4. Contingent Beneficiary Clause

The correct answer is: Spendthrift Clause

The Spendthrift Clause is specifically designed to protect life insurance benefits from the beneficiary's creditors and prevent the beneficiary from accessing the policy proceeds before they are received from the insurance company. This means that once the death benefit is paid out, it is safeguarded from claims by creditors for a period of time to provide the beneficiary with financial security. Additionally, the clause restricts the beneficiary from assigning their rights to the proceeds to another party before those proceeds are actually paid out, further ensuring that the funds are available for the intended purpose. In contrast, the Beneficiary Assignment Clause deals with the transfer of the policy rights to another party, the Right of Withdrawal Clause allows the policyholder to withdraw funds from the policy, typically seen in permanent life insurance policies, and the Contingent Beneficiary Clause pertains to secondary beneficiaries who would receive the benefits if the primary beneficiary were to pass away before the policyholder. These clauses do not offer the same level of protection against premature access to funds that the Spendthrift Clause provides.