Under what condition are life insurance policy proceeds protected from creditors' claims?

Life insurance policy proceeds are protected from creditors' claims primarily when there is a named beneficiary designated on the policy. This protection is rooted in the idea that the proceeds are meant for the financial benefit of the specified beneficiary after the policyholder's death, rather than being available to satisfy debts owed by the policyholder.

By naming a beneficiary, the policyholder ensures that the death benefit is not considered part of the estate, which is typically subject to creditor claims. Thus, the funds go directly to the beneficiary, providing them with financial support without the risk of being accessed by the policyholder's creditors.

In contrast, if a policyholder does not name a beneficiary, or if the beneficiary is the estate itself, then the life insurance proceeds could be reachable by creditors, as they would then be considered part of the estate assets subject to claims. Other factors like the policy being fully paid, its joint status, or the age of the policyholder do not fundamentally alter the creditor protection tied to having a named beneficiary.