A person may insure his or her own life for the sole use and benefit of his or her spouse or children or both, and upon his or her death the proceeds from the insurance shall be paid to or for the benefit of the spouse or children or both, or to a guardian, free from all claims of the representatives or creditors of the insured or his or her estate. Any insurance policy which insures the life of a person for the sole use and benefit of that person's spouse or children or both shall not be subject to the claims of creditors of the insured during his or her lifetime, whether or not the policy reserves to the insured during his or her lifetime any or all rights provided for by the policy and whether or not the policy proceeds are payable to the estate of the insured in the event the beneficiary or beneficiaries predecease the insured.
(1977, c. 115, s. 1.)
History Note. - The provisions of this section are similar to those of Art. X, § 7, Const. 1868, as amended in 1932.
Legal Periodicals. - For article on debtors' exemption rights under the Bankruptcy Reform Act, see 58 N.C.L. Rev. 769 (1980).
For article on the rights of individuals to control the distributional consequences of divorce by private contract and on the interests of the State in preserving its role as a third party to marriage and divorce, see 59 N.C.L. Rev. 819 (1981).
CASE NOTES
Editor's Note. - Most of the cases cited below were decided under former Art. X, § 7, Const. 1868, before and after amendment.
Purpose. - The purpose of this section is to enable the husband (spouse) to make valuable provision for his wife (spouse) and children after his death, above, beyond and unaffected by his estate, personal and real, and the conditions of the same remaining at the time of his death. Burwell v. Snow, 107 N.C. 82, 11 S.E. 1090 (1890).
Certain Insurance Proceeds Not Part of Insured's Estate. - Where a life insurance policy is issued to an individual in the name and for the benefit of the wife (spouse) and children, it does not upon his death become a part of his estate. Burton v. Farinholt, 86 N.C. 260 (1882).
Under this section the proceeds from insurance policy payable to the wife (spouse) and children are not a part of the insured's estate so that they may be claimed by an heir or next of kin. Burwell v. Snow, 107 N.C. 82, 11 S.E. 1090 (1890).
Wives (spouses) and children of bankrupts are protected from claims of the bankrupt's creditors, both during his life and at his death, if life insurance policies are for their sole benefit. In re Wolfe, 249 F. Supp. 784 (M.D.N.C. 1966), commented on in 45 N.C.L. Rev. 696 (1967).
Protection Is Personal to Survivors. - This section clearly looks to provision for the wife (spouse) and children so that they may not be left destitute by the death of an insolvent husband and father (spouse and parent) and is personal to them when they survive. Hooker v. Sugg, 102 N.C. 115, 8 S.E. 919 (1889).
Treatment of Insurance Proceeds When Received by Beneficiary. - Upon filing a bankruptcy petition, a debtor can claim as exempt the value of life insurance policy. There is no provision, however, that extends the protection of the life insurance exemption to the beneficiary of the policy once the proceeds are in the beneficiary's hands. The proceeds are treated like any other asset of the beneficiary and are available to his creditors, except to the extent that an exemption or other protection is available to the beneficiary in his own right under applicable law. The result is no different where the beneficiary is the codebtor of the insured in a joint bankruptcy case. Butler v. Sharik, 41 Bankr. 388 (Bankr. E.D.N.C. 1984).
Applied in First Nat'l Bank v. Dixon, 38 N.C. App. 430, 248 S.E.2d 416 (1978).
Cited in In re Ragan, 64 Bankr. 384 (Bankr. E.D.N.C. 1986); HFC v. Ellis, 107 N.C. App. 262, 419 S.E.2d 592 (1992), cert. granted, 333 N.C. 167, 424 S.E.2d 909 (1992).
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