Answer:
Spendthrift provision
Explanation:
A spendthrift provision is a clause in a Trust or a Will that protects a beneficiary against a creditor attaching prior debts against the beneficiary's inheritance as well as preventing the beneficiary from acquiring debt based on the future inheritance.
The purpose is to prevent a beneficiary from using a potential gift as security for credit on a speculative or bad investment. An extension of the protection offered by a spendthrift provision includes protection from a beneficiary’s creditors being able to force a Trustee or Personal Representative to pay the beneficiary’s share to the creditor instead of to the beneficiary.
Full Question:
When a life insurance policy stipulates that the beneficiary will receive payments in specified instalments or for a specified number of years, what provision prevents the beneficiary from changing or borrowing from the planned instalments?
A. Spendthrift provision
B. Settlement option
C. Accelerated benefit provision
D. Loan provision
Answer:
The correct answer is A) Spendthrift Clause or Provision
Explanation:
The spendthrift clause protects life insurance proceeds from creditors. The beneficiary's creditors are prohibited from claiming any of the policy's benefits before the beneficiary is paid.
The spendthrift clause prevents the beneficiary from changing the way in which the policy benefits have been planned for payout. If for instance the payments are to be made over a 10 year period, the beneficiary cannot assign or transfer the proceeds to another party in order to obtain a lump sum payment.
Cheers!
