Code of Virginia

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Code of Virginia
Title 38.2. Insurance
Chapter 31. Life Insurance
8/5/2021

Article 2. Proceeds of Certain Policies.

§ 38.2-3118. Spendthrift trusts created under life insurance policies.

If, under the terms of any life insurance policy or of any written agreement supplemental to a life insurance policy, the proceeds are retained by the insurer at maturity or otherwise, no person entitled to any part of the proceeds, or to any installment of interest due or becoming due, may commute, anticipate, encumber, alienate or assign the proceeds or any part of the proceeds or interest if permission is expressly withheld by the terms of the policy or supplemental agreement. If the life insurance policy or supplemental agreement provides, no payments of interest or principal shall be in any way subject to the person's debts, contracts or engagements, nor to any judicial process to levy upon or attach the interest or principal for payment of those debts, contracts, or engagements.

Code 1950, § 38-115; 1952, c. 317, § 38.1-444; 1986, c. 562.

§ 38.2-3119. Limitation on § 38.2-3118.

A. The provisions of § 38.2-3118 shall not apply to any proportionate part of the proceeds of any such policy or supplemental contract mentioned in § 38.2-3118 arising or resulting from premiums paid by the beneficiary. The proportionate part of the proceeds shall be determined by comparing the total premiums paid for the policy, without interest, with the premiums for the policy, without interest, paid by the beneficiary.

B. Notwithstanding the other provisions of this section, an insurer who (i) has no written notice of any claim that premiums have been paid by the beneficiary and (ii) has no written notice of an adverse claim of any other character under this section, shall be protected in making or withholding payments pursuant to the terms of a policy or supplemental agreement.

C. Notwithstanding the other provisions of this section, upon an insurer's acceptance of proof that premiums have been paid by the beneficiary and the insurer's payment of the corresponding proportionate part of the proceeds of the policy or supplemental agreement, the insurer's payment shall constitute full release of the insurer from all liability with respect to the proportionate part of the proceeds of the policy or supplemental agreement.

Code 1950, § 38-116; 1952, c. 317, § 38.1-445; 1986, c. 562.

§ 38.2-3120. Repealed.

Repealed by Acts 2005, c. 935, cl. 3, effective July 1, 2006.

§ 38.2-3121. Segregation of proceeds not required.

No insurer holding the proceeds of any policy mentioned in § 38.2-3118 shall be required to segregate the proceeds but may hold them as a part of its general corporate funds.

Code 1950, § 38-118; 1952, c. 317, § 38.1-447; 1986, c. 562.

§ 38.2-3122. Proceeds and avails of life insurance policies and annuity contracts free of certain claims.

A. As used in this section, "protected insurance item" means, with respect to a policy of life insurance or annuity issued or issued for delivery in the Commonwealth:

1. The cash surrender value of any such policy;

2. The proceeds of any such policy;

3. The withdrawal value of any optional settlement or deposit with any company made pursuant to the terms of such policy; or

4. All other benefits, indemnities, payments, and privileges of every kind from any such policy.

B. In no case whatsoever shall any protected insurance item be liable to execution, attachment, garnishment, or other legal process in favor of any creditor of:

1. The person whose life is insured by the related policy or contract;

2. The person who can, may, or will receive the benefit of that protected insurance item, provided that such person is the insured or owner of the contract, deposit, indemnity, policy, or settlement or the spouse or intended spouse of, a dependent child of, or any other person dependent on, the insured or owner of the contract, deposit, indemnity, policy, or settlement;

3. The person who owns the related contract, deposit, or policy; or

4. The person who effected the related contract, deposit, or policy.

C. The provisions of subsection B shall not apply to any claim by a creditor with respect to a life insurance policy, annuity contract, or deposit with an insurance company that was taken out, made, or assigned in writing for the benefit of the creditor.

D. Notwithstanding the provisions of subsection B and subject to the applicable statute of limitations, the amount of any premiums or other amounts paid for the related life insurance policy, annuity contract, or deposit with an insurance company that were paid with the intent to defraud creditors, with the interest thereon, shall inure to the benefit of the creditors from the proceeds of the policy, contract, or deposit.

E. The exemption provided by this section shall not apply to any protected insurance item issued or effected during the six months preceding the date that the person claiming the exemption (i) files a voluntary petition in bankruptcy; (ii) becomes the subject of an order for relief or is declared insolvent in any federal or state bankruptcy or insolvency proceeding; or (iii) files a petition or answer seeking for himself any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any statute, law, or regulation.

F. The exemption established by this section shall apply to a protected insurance item regardless of whether (i) the right to change the beneficiary thereof is reserved or permitted or (ii) any of the following persons or any of their estates is a contingent beneficiary thereof:

1. The person insured by the related life insurance policy;

2. The person effecting the related life insurance policy or annuity contract;

3. The annuitant of the related annuity contract; or

4. The owner of the related life insurance policy or annuity contract.

Code 1950, § 38-119; 1952, c. 317, § 38.1-448; 1986, c. 562; 2016, c. 274.

§ 38.2-3122.1. Annuity contract purchased to fund retirement benefits; protection from creditor's claims.

A. As used in this section:

"Employer" means a person doing business in or operating within the Commonwealth who employs another to work for wages or a salary or on commission and includes any similar entity acting directly or indirectly in the interest of an employer in relation to an employee. "Employer" does not include the Commonwealth or any of its agencies, institutions, or political subdivisions or any public body.

"ERISA" means the federal Employee Retirement Income Security Act of 1974 (P.L. 93-406, 88 Stat. 829), as amended.

"Pension plan" has the same meaning ascribed to that term in § 3(2) of ERISA.

B. Any interest in or amounts payable to a participant or beneficiary from any allocated or unallocated group annuity contract issued or issued for delivery in the Commonwealth to an employer or a pension plan for the purpose of providing retirement benefits to employees or retirees of the employer under a defined benefit plan, which retirement benefits were protected under ERISA or the Federal Pension Benefit Guaranty Corporation prior to the effective date of the group annuity contract and will not be protected under ERISA or the Federal Pension Benefit Guaranty Corporation on and after the effective date of the group annuity contract, shall be exempt from the claims of all creditors of such participant or beneficiary.

C. The exemption from the claims of creditors provided under subsection B shall not apply to claims arising under a qualified domestic relations order.

D. The exemption from the claims of creditors provided under subsection B shall not apply to any claim by a creditor with respect to an annuity contract that was taken out, made, or assigned in writing for the benefit of the creditor.

E. Notwithstanding the provisions of subsection B and subject to the applicable statute of limitations, the amount of any premiums or other amounts paid for the related annuity contract that were paid with the intent to defraud creditors, with the interest thereon, shall inure to the benefit of the creditors from the proceeds of the policy, contract, or deposit.

F. The exemption provided by this section shall not apply to any protected annuity contract issued or effected during the six months preceding the date that the person claiming the exemption (i) files a voluntary petition in bankruptcy; (ii) becomes the subject of an order for relief or is declared insolvent in any federal or state bankruptcy or insolvency proceeding; or (iii) files a petition or answer seeking for himself any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any statute, law, or regulation.

2018, c. 847.

§ 38.2-3123. Repealed.

Repealed by Acts 2018, c. 304, cl. 2.

§ 38.2-3124. Protection of insurers from creditor's claims.

Notwithstanding § 38.2-3122, any insurer issuing any insurance policy shall be discharged of all liability on that policy by payment of its proceeds in accordance with its terms, unless before payment the insurer receives written notice by or on behalf of a creditor of a claim, stating the amount claimed and the nature of the claim.

Code 1950, § 38-121; 1952, c. 317, § 38.1-450; 1986, c. 562; 2018, c. 304.

§ 38.2-3125. Other rights of beneficiaries and assignees protected.

Since the purpose of §§ 38.2-3122 and 38.2-3122.1 is to confer additional rights, privileges, and benefits upon beneficiaries and assignees of policies, no beneficiary or assignee shall by reason of these sections be divested or deprived of or prohibited from exercising or enjoying any right, privilege, or benefit that he would have or could exercise or enjoy had §§ 38.2-3122 and 38.2-3122.1 not been enacted.

Code 1950, § 38-119; 1952, c. 317, § 38.1-451; 1986, c. 562; 2018, cc. 304, 847.