Policy Taken by a Creditor Payable by Debtor v. Policy Taken by Debtor Payable to Creditor Flashcards
What are the differences between:
(1) a policy taken by a creditor on the life of his debtor; and
(2) a policy taken by the debtor on his own life and made payable to his creditor?
The differences between a policy taken by a creditor on the life of his debtor and a policy taken by the debtor on his own life and made payable to his creditor are reconciled as follows:
[A] distinction should be made between a policy
taken by a debtor on his life and made payable to his creditor, and one taken by a creditor on the life of his debtor. Where a debtor in good faith insures his life for the benefit of his creditor, full payment of the debt does not invalidate the policy; in such case, the proceeds should go to the estate of the debtor.
Meanwhile, in a situation where an insurance is taken by a creditor on the life of his debtor:
[T]he insuring creditor could only recover such
amount as remains unpaid at the time of the death of the debtor, — such that, if the whole debt has already been paid, then recovery on the policy is no longer permissible.
