L&HNew Yorkeasy
In a NY life insurance policy, the 'spendthrift clause' applied to a beneficiary's installment settlement primarily serves to:
Protect the unpaid proceeds from the beneficiary's creditors and prevent the beneficiary from assigning or pledging future installments
BAllow the insurer to invest the proceeds in higher-yield securities before payout
CReduce the federal estate tax on the death benefit
DPermit the insured to change the beneficiary unilaterally after death
Why this is the answer
A spendthrift clause in a NY life policy or settlement-option election protects unpaid installment proceeds from claims of the beneficiary's creditors and prohibits the beneficiary from anticipating, assigning, or pledging future payments. The policyowner usually selects the clause when electing a settlement option for the beneficiary. The clause does not affect investment of the proceeds, does not alter federal estate tax (which turns on incidents of ownership under IRC analysis, but NY rules here concern creditor reach, not tax), and cannot resurrect a deceased insured's ability to redirect benefits.
Studying for the New York Life & Health exam?
This question comes from our L&H bank. Take a free practice test — no signup.