Massachusetts Protections of Cash Value Life Insurance

The Massachusetts laws protecting cash value life insurance might as well be written in Middle English.  They simply cannot be understood by any except the most persistent of us.  Lucky for us, some recent court decisions help us find our way. 

Back in 2007, I complemented U.S. Bankruptcy Judge Henry J. Boroff for his Shloss and Chevalier decisions.  He translated the ancient statutes into the English we can all understand.  Judge Melvin S. Hoffman of the same court has now added to our understanding.

I earlier wrote that “The three primary statutes protect protect cash value where (1) the policy prohibits assignment (GLM c 175 sec 119A; In re Shloss, 279 B.R. 6 (Bankr. D. Mass. 2002), (2) where there has been no change from an original beneficiary and the original beneficiary is not the debtor’s estate (GLM c 175 sec 125; In re Chevalier, 330 B.R. 21 (Bankr. D. Mass. 2005), or (3) where the beneficiary is a married woman even if later divorced, but not when the beneficiary is a child or a married woman as trustee for a child (GLM c 175 sec 126; In re Shloss, 279 B.R. 6 (Bankr. D. Mass. 2002).”

Judge Hoffman’s recent decision clarified sec. 126 to note that it did not protect a married woman’s interest in a cash value policy which insured the life of her child. In re Chung-I Liang, 2012 Bankr. LEXIS 2902 (Bankr. D. Mass. June 26, 2012).

Both this and the Shloss case expressly did not address the constitutionality of the gender bias favoring married women only.  That issue remains for another day.

Astute readers will have noted my earlier link to Dave Ramsey’s “THE TRUTH ABOUT LIFE INSURANCE”.  Mr. Ramsey wrote “Cash value life insurance is one of the worst financial products available.”  It’s because so much of the premiums go to sales commissions instead of benefits. 

Buyer beware.  Beware of the purchase of cash value life insurance, and beware of its protections in bankruptcy.