If an individual dies, will his insurance be claimed by his beneficiaries or will it be divided among his creditors? This is one pressing question that has been hounding the insurance industry and almost everyone who holds a life insurance policy. Furthermore, there are many questions that arise regarding the implications of personal bankruptcy to life insurance claims.
In Australia, personal insolvency has been rising. Individuals may voluntarily file for personal bankruptcy especially if they cannot pay their debts anymore. For their part, their creditors can also apply to make those individuals bankrupt. In general, bankruptcy lasts for three years. However, it can be extended indefinitely under specific circumstances.
No one can be considered as immune from personal bankruptcy. It can afflict at risk professionals (like dentists, doctors, accountants, lawyers, engineers, and architects), company directors, and self-employed people. Possible work- or business-related litigation against such professionals can send them to bankruptcy. That is why the issue whether creditors could file to get claims from insurances is always significant.
In general, proceeds from life insurance claims may never be provided to and divided among creditors of an individual. The claims must be filed for and obtained by the rightful beneficiaries, no matter what the circumstance can be. Thus, life insurance products in Australia naturally protect an individual against implications of possible bankruptcy. Life insurance policies inside and outside superannuation will always provide protection against possible attempts by creditors to obtain the claims, which are rightfully belonging to policyholders and beneficiaries.