Insights

Can Ningbo policies isolate debt?

Ningbo Author：LuXu WANG

"If you buy a large insurance policy, you can isolate debts, and you are not afraid of being executed" -- this is one of the most common misleading words in insurance sales. To begin with the conclusion: While insurance policies do possess certain property attributes, regarding them as a “debt firewall” is largely a misconception. The cash value in the life insurance policy belongs to the responsible property of the insured. When the insured becomes the executed person, the court can forcibly cancel the policy and withdraw the cash value to pay off the debt. Death insurance benefits are not regarded as the estate of the insured and can be isolated only if the beneficiary is clearly designated at the time of insurance. Large insurance policies that aim at avoiding debts and are suddenly insured before and after the formation of debts may also be deemed as "penetrating" to avoid execution ". Based on the "the People's Republic of China Insurance Law" (hereinafter referred to as the "Insurance Law") and related judicial practice, this paper disassembles the true boundary of policy isolation debt.

1. two types of property attributes in the policy: cash value and death insurance cannot be confused

Life insurance policies involve two property interests with completely different legal status. First, cash value: the accumulated value of the policy that the policyholder can request the insurer to return when the contract is terminated. Article 47 of the Insurance Law stipulates: "If the applicant terminates the contract, the insurer shall, within 30 days from the date of receipt of the notice of termination of the contract, refund the cash value of the insurance policy in accordance with the contract. "The cash value accumulates year by year with the contribution, which is essentially the creditor property interest of the policyholder to the insurer and belongs to the policyholder. Second, death insurance: after the death of the insured, the insurer in accordance with the contract to pay the beneficiary insurance. Article 42 of the Insurance Law stipulates: "After the death of the insured, in any of the following circumstances, the insurance money shall be taken as the estate of the insured ...... The (I) does not designate a beneficiary, or the designation of the beneficiary is unknown and cannot be determined; the (II) beneficiary dies before the insured and there are no other beneficiaries; the (III) beneficiary loses the right to benefit or waives the right to benefit in accordance with the law, and there are no other beneficiaries. A simple comparison reveals that the cash value “naturally belongs to the policyholder,” whereas whether the death benefit constitutes part of the insured’s estate depends on whether a beneficiary has been designated—mistaking the two for one is the root cause of many flawed debt‑avoidance strategies.

2. Why can the cash value be subject to compulsory execution?

The cash value is the property interest that the policyholder can request to return after the termination of the insurance contract, which belongs to the policyholder, so when the policyholder is the executed person, the cash value belongs to his liability property. The enforcement practice of the Supreme People's Court and local courts generally confirms that for life insurance policies with cash value, the enforcement court may take measures such as freezing, forcibly terminating the contract and withholding the cash value to pay off the debts of the executed person (on the premise that the basic living necessities of the executed person and his dependent family members are protected in accordance with the law). This means that "using the policy to avoid debt" is basically invalid for the cash value part: whether it is insured after the debt or before the debt, as long as the policyholder himself is the debtor, the cash value of the policy is within the enforceable range. In practice, it should be noted that if the insured is inconsistent with the insured and the beneficiary is a family member, the court's compulsory withdrawal will affect the protection interests of the beneficiary and the insured at the same time, and the court will usually weigh it comprehensively in the execution procedure, but the mainstream direction is still "cash value can be executed". After receiving the notice of enforcement, the person subject to enforcement shall truthfully declare the property of the policy, and those who conceal the non-reporting will face the criminal risk of fines, detention or even refusal to execute the judgment or ruling.

The isolation premise of 3. death insurance: the designated beneficiary is the key

The death insurance shall not be included in the estate of the insured and shall not be used to pay off the insured's debts, provided that the beneficiary is designated at the time of insurance and the beneficial relationship continues to be valid. The logical chain has three links: the first link, after the beneficiary is designated, the right to claim insurance benefits belongs to the beneficiary and is independent of the insured's estate (the negative interpretation of Article 42 of the Insurance Law); The second ring, if no designated beneficiary or beneficiary dies before the insured and there are no other beneficiaries, the insurance money shall be inherited by the heirs as the insured's estate and shall be included in the scope of the insured's debt settlement. The third ring, also return to the legacy. In other words, the effect of segregation depends on the act of "designating a clear beneficiary", not on the act of "buying insurance" itself. If you only fill in the "legal" or do not fill in the beneficiary at the time of insurance, it is tantamount to giving up the isolation function. In addition, attention should be paid to the linkage between the designation of beneficiaries and marriage and inheritance: the attribution of death insurance benefits in the context of divorce and inheritance depends on the source of funds insured by the beneficiary and the contribution, and cannot be characterized simply by the word "insurance money.

Penetration risk of 4. surprise insurance to avoid debt

Before and after the formation of debt, in order to avoid the execution of large annuity and whole life insurance in the name of oneself or one's family, intending to make the property out of the scope of liability property, the execution may be regarded as the behavior of evading execution and be "penetrated". When the court reviews, three groups of factors are usually combined: first, the source of funds, whether the insurance premium comes from the account of the person to be executed, and whether it is highly related to the amount of debt; The second is the time of insurance, whether the insurance occurs before and after litigation, execution or debt maturity, and the relationship with the time when the debt is formed. The third is the purpose of insurance, whether there is a real protection demand and reasonable family planning, or pure property transfer arrangement. If it is found to have evaded execution, the court may forcibly cancel the relevant insurance policy and deduct the cash value, and if the circumstances are serious, it may also constitute the crime of refusing to execute the judgment or ruling. It should be noted that the structure of "insuring in the name of the family but actually contributing" is also unsafe: the separation of capital contribution and policy interests may be considered as holding or transferring property, and the policy under the name of the family will also lead to disputes over ownership in divorce and inheritance scenarios, which can be said to have failed at both ends.

Breakdown of 5. situations: assessment by identity of policyholder and beneficiary

In practice, the policy debt risk can be split into four categories. First, both the insured and the insured are the debtor themselves: the cash value of the policy is necessarily enforceable, and the death insurance premium is of limited significance because the insured is the debtor, whether or not the beneficiary is designated (the insurance premium is not an estate when the beneficiary is designated, but the cash value is already enforceable). Second, the insured is the debtor, the beneficiary is the spouse or child: the cash value is still the debtor's liability property can be executed, after the death of the insurance benefits to the beneficiary, but if the source of the insured funds is the joint property of the husband and wife, divorce division or creditor claims may still be penetrated. Third, the insured is a spouse or child (with family joint funds): if the actual contributor is the debtor himself, it is "insured for the family, but actually transferred for the individual", and there is a risk of penetration; if the funds are indeed owned by the family and the purpose of the insurance is true, the isolation effect is relatively stable, but the source of the contribution must be retained. Fourth, the policyholder is the enterprise, the insured is the executive or shareholder: the enterprise as the policyholder's policy belongs to the enterprise assets, the cash value of the enterprise liabilities can also be enforced, the shareholders "borrow the policy to hide the enterprise assets" idea does not work. The four types of situations point to the same thing: the premise of isolation is that "the money is really not yours and the purpose is true and compliant". Any ambiguity in capital and identity will become a breakthrough point when involved in litigation.

6. Case verification and real-life cases

According to Ningbo Intermediate People's Court's "case statement", "Divorced, how to calculate the" account "?" (2014-08-05) Public Contents and Public Cases of Divorce Disputes between Chang and Meng in Ningbo Jiangbei Court: Personal Insurance Claims are Personal Dependence and Personal Property; The premium insured by the family during the marriage is the joint property of the husband and wife, and the house, vehicle and insurance policy are divided according to the confirmed value in Ningbo divorce litigation. As far as the caliber of execution is concerned, if the insured is the executed person and the policy has cash value, the court supports the situation of execution on the cash value, and it is not uncommon for the death insurance of the undesignated beneficiary to be used as an estate to pay off the debt. Ningbo region's determination of "the designated beneficiary party has isolation, surprise insurance can penetrate" is consistent with the province and the whole country. At the national level, courts in many regions have issued guidelines on the enforcement of insurance policies, clearly specifying the types of policies that can be subject to compulsory execution, the procedures for deducting their cash value, and the standards for withholding funds to ensure the basic living needs of the judgment debtor, demonstrating a high degree of consistency in approach.

7. Common misconceptions and correct answers

Myth 1: If you buy insurance, you can isolate the debt, and you are not afraid of being executed. positive solution: the cash value belongs to the property of the policyholder's responsibility, and the policyholder can be enforced when he is the executed person, and the insurance policy is not a debt firewall.

Misunderstanding 2: Death insurance money naturally does not have to pay off debts. Positive solution: only when a definite beneficiary is designated, the insurance premium will not be regarded as the heritage of the insured; if the beneficiary is not designated or the beneficiary dies first and there is no other, the insurance premium will be used as the heritage to pay off the debt.

Misunderstanding 3: When the debt is approaching, the court can't find out when buying large insurance policies. Positive solution: the court can get the insurance policy information from the insurance company; if the insurance is taken out by surprise for the purpose of evading execution, it may be deemed to be penetrated by evading execution, or even trigger criminal liability.

Misunderstanding 4: It is safest to insure in the name of family members and actually contribute money by yourself. positive solution: the separation of capital contribution and rights and interests can easily be identified as holding or transferring property on behalf of others. when it comes to litigation and divorce, the ownership is controversial, and the purpose of isolation is difficult to achieve.

Myth #5: Cash value is enforced only to lose some money. Positive explanation: compulsory surrender means the termination of the insurance policy, and the double damage of the insurance and cash; if the policyholder still has other enforceable property, he should cooperate with the implementation of truthful declaration first to avoid more heavy responsibility due to concealment.

8. Bill of Materials and Compliance Operation Process

For those who have been involved in debts or plan to do family property planning, it is recommended to check against the following list:

  1. sort out the insurance policy files: the policyholder, the insured, the beneficiary, the payment account, the cash value table, the insurance policy loan situation, and make a register one by one;
  2. Check the source of contribution: premium payment account and source of funds (personal ownership/husband and wife joint/family holding), and keep the bank flow and explanatory documents;
  3. check beneficiary designation: confirm one by one whether a definite beneficiary is designated, whether the beneficiary relationship continues to be effective, and handle changes in time if there is no designation or unknown designation;
  4. Assess debt correlation: the relationship between the time point of insurance and the time point of debt formation and litigation, and judge whether it is in the high-risk range of "surprise insurance;
  5. declare the property truthfully: as the person subject to execution, write the insurance policy and cash value into the property declaration form truthfully to avoid concealment;
  6. Pre-planning arrangement: If there is a real demand for protection and inheritance, the insurance should be carried out before the formation of the debt and based on the real protection purpose. The insured subject and the source of funds should be clear, and the beneficiary should be designated.

Procedures and remedies for the execution of 9. policies: the process from freezing to deduction

The execution of the cash value of the policy of the person subject to execution is not "a paper document directly surrenders the insurance", which usually goes through four stages. The first stage, freezing: the court issues a notice of assistance to the insurance company, freezes the cash value of the policy and the rights and interests paid, and inquires the complete information of the insured, the insured and the beneficiary. In the second stage, notice and redemption opportunity: the court serves an enforcement notice on the policyholder, requiring him to replace the execution with other equivalent property (I. e. redemption policy) within a specified period of time, or to cooperate with the procedures for the termination of the contract-giving the policyholder a choice to retain the policy, which is a common practice to balance the realization of claims and the protection of interests. In the third stage, compulsory discharge and deduction: if the applicant fails to cooperate within the time limit, the court shall issue a notice of deduction or compulsory termination of the contract to the insurance company, and the insurance company shall calculate the cash value and transfer it to the court's execution account. In the fourth stage, protection and objection: the court shall pay off the debts under the premise of guaranteeing the basic living expenses of the executed person and his dependent family members in accordance with the law; if the executed person or the outsider has any objection to the execution act or the amount of cash value, the execution objection or the outsider's objection may be raised within the statutory time limit. If the policy has been pledged as collateral for a loan, the enforcement proceedings must first address the pledge relationship; if the beneficiary is a third party and the insurance proceeds are subject to a claim, the scope and order of enforcement will be affected. The person subject to execution shall truthfully declare the property of the policy and cooperate with the provision of the policy contract, conceal the failure to report or transfer the policy, and may face criminal liability for fines, detention or even refusal to execute the judgment or ruling.

10. Frequently Asked Questions

Do policies really isolate debt?

Limited. The cash value belongs to the liability property of the insured, which can be enforced when the insured is the person to be executed, and the death insurance premium is not listed as the insured's estate only when the beneficiary is designated, and the isolation effect can be discussed, and may still be comprehensively reviewed due to the source of capital contribution and other issues.

How can the death benefit be protected from being used to pay off debts?

When applying insurance, the beneficiary shall be clearly designated and the beneficial relationship shall be ensured to be continuous and effective; if the beneficiary is not designated or the beneficiary dies first and there are no other beneficiaries, the insurance fund will be used as the inheritance to pay off the debts. At the same time, pay attention to the clear source of premium contribution, to avoid being identified as the family joint funds or the debtor as the actual contributor and penetration.

Is it safe to buy a large policy before going into debt?

The relatively safe premise is: based on the real security needs, before the debt is formed, the appropriate subject is insured in compliance and the beneficiary is designated, and the source of funds is not related to the debt. If there is a large liability or a debt that is about to mature before the debt is formed, it may still be considered as a transfer of property.

What about the guarantee that the cash value is enforced?

If the court forcibly cancels the policy to withdraw the cash value, the policy will be terminated, and the protection and cash will be damaged. The executed person may negotiate with the creditor to replace the execution with other property, or object to the retention of basic living expenses, but the "policy is not enforceable" itself lacks a basis.

How to deal with divorce and debts of the policy jointly funded by husband and wife?

During the existence of marriage, the insurance policy benefits corresponding to the premium paid by the joint property of husband and wife belong to the joint property of husband and wife, which shall be divided according to the cash value in the case of divorce; if one party is the person subject to execution, the court can still execute the property rights and interests in the insurance policy, and the spouse can claim to divide his own share but need to prove the source of contribution.

XI. Practical Insights from a Lawyer

"You can segregate your debts by buying a big insurance policy", which has hurt many people in practice. Two things should be looked at separately: one is the cash value of the insurance policy, which belongs to the responsible property of the insured. Once the insured becomes the executed person, the court can forcibly terminate the contract and withdraw the cash value for repayment; the second is the death insurance money. Only when the beneficiary is clearly designated at the time of insurance, can it not be regarded as the insured's estate, and can it be said to have a segregation effect. In other words, the key to isolation is not "whether to buy insurance", but in "who is insured and who is designated to benefit". If the allocation method is wrong, the money may still be implemented.

Further, there is a risk of "penetration" of large insurance policies that are aimed at avoiding debts and are suddenly insured before and after the formation of debts. The judgment is based on the motivation and time of insurance: the financial crisis has appeared, the stage of immediate debt collection suddenly large amount of insurance, obvious deviation from the normal protection needs, it is easy to be identified as circumvention of implementation. Therefore, in the arrangement of family wealth, insurance should return to the original intention of protection and long-term planning, rather than the "firewall" that comes to mind when disputes arise ". Truly effective risk isolation relies on ex ante legal arrangements and clarity of asset structure, rather than a large contract for temporary cramming.

If your concern is divorce, you should also put the policy in the property list and deal with it. After marriage to the common property to pay premiums to form the cash value, usually belongs to the property can be divided, not because of the "insurance is not property" this sentence on the whole missed. In the way of treatment, the withdrawal of insurance division, change the policyholder discount, according to the proportion of contributions cut, retention of the contract agreed to pay the future have a trade-off, usually to change the policyholder and discount compensation for the minimum loss on both sides, but also depends on the solvency of the other party and your cash needs. Putting the policy and other property on the same table makes it easier to talk about it than to get entangled, and less likely to miss items.

A policy is not a universal shield against debt. Remember two: the cash value as the property of the policyholder, when the policyholder is the person to be executed can be enforced according to law. A truly compliant arrangement is to insure and designate beneficiaries before the debt is formed, based on real protection and a reasonable structure, rather than a "transfer" in the event of danger ". It is more reliable to place the policy in the overall family property and debt planning than to chase any "debt avoidance artifact.