Printable Format40-414. Exemption of interests in policies; exceptions. (a) If a life insurance company or fraternal benefit society issues any policy of insurance or beneficiary certificates upon the life of an individual and payable at the death of the insured, or in any given number of years, to any person or persons having an insurable interest in the life of the insured, the policy and its reserves, or their present value, shall inure to the sole and separate use and benefit of the beneficiaries named in the policy and shall be free from:
(1) The claims of the insured or the insured's creditors and representatives;
(2) the claims of any policyholder or the policyholder's creditors and representatives, subject to the provisions of subsection (b);
(3) all taxes, subject to the provisions of subsection (d); and
(4) the claims and judgments of the creditors and representatives of any person named as beneficiary in the policy of insurance.
(b) The nonforfeiture value of a life insurance policy shall not be exempt from:
(1) Claims of the creditors of a policyholder who files a bankruptcy petition under 11 U.S.C. § 101 et seq. on or within one year after the date the policy is issued; or
(2) the claim of any creditor of a policyholder if execution on judgment for the claim is issued on or within one year after the date that the policy is issued.
(c) Nothing in this section shall be construed as restricting the right of the insured to change the beneficiary if the policy reserves that right to the insured.
(d) Nothing in this section shall be construed as exempting from taxation any real estate which may at any time be carried by any life insurance company as a part of its legal reserve.
(e) The provisions of subsection (b) shall apply only to life insurance policies purchased on or after July 1, 1988.
(f) The provisions of subsection (b) shall not apply to that portion of the nonforfeiture value of a life insurance policy, issued on or within one year of the filing of a bankruptcy petition under 11 U.S.C. § 101 et seq. or an execution on judgment for the claim of the creditor, which is derived from the surrender of a life insurance policy issued more than one year prior to such bankruptcy petition or such execution.
History: L. 1927, ch. 231, 40-414; L. 1933, ch. 71, § 1 (Special Session); L. 1984, ch. 170, § 1; L. 1988, ch. 217, § 1; July 1.
Source or prior law:
L. 1871, ch. 93, § 77; L. 1873, ch. 91, § 1; L. 1895, ch. 163, § 1; L. 1907, ch. 228, § 13; R.S. 1923, 40-327, 40-813.
Cross References to Related Sections:
Actions to recover death benefits based on certain insurance policies, see 40-258.
Law Review and Bar Journal References:
Mentioned in note, 1 K.L.R. 195, 198 (1952).
Discussed in note, 8 K.L.R. 135, 137 (1959).
"Life Insurance in Family Tax Planning," Robert E. Rose, 10 K.L.R. 9 (1961).
"What the General Practitioner Should Know About Bankruptcy," J. J. Dawes, 35 J.B.A.K. 171, 200 (1966).
"Professional Liability Insurance: Implication of Termination," Wayne T. Stratton, 77 J.K.M.S. 255, 257 (1976).
"Kansas Inheritance Tax Joins the Twentieth Century," Benjamin J. Neill, 48 J.B.A.K. 313, 321, 325 (1979).
"Bankruptcies in Kansas: A Need to Reform Our Exemption Laws?" Stuart A. Haney, 22 W.L.J. 286, 288 (1983).
"Will Substitutes in Kansas," Jana J. Deines and Michael E. McMahon, 23 W.L.J. 132, 146 (1983).
"Counseling Debtors on Bankruptcy—Which Chapter to Choose," David J. Berkowitz, 53 J.K.B.A. 272 (1984).
"Exemption Laws in Kansas: Recent Amendments and Bankruptcy Estate Planning," Mark A. Andersen, 38 K.L.R. 143 (1989).
"The Kansas Uniform Fraudulent Transfer Act," Leon B. Graves, 68 J.K.B.A. No. 6, 34 (1999).
"The Effect of Bankruptcy on Divorce Planning," Brenda J. Bell, Sharon Wright Kellstrom and Anne Burke Miller, 70 J.K.B.A. No. 3, 30 (2001).
CASE ANNOTATIONS
1. Proceeds paid to beneficiary are subject to garnishment. Reighart v. Harris, 6 Kan. App. 339, 51 P. 788. Overruled: Emmert v. Schmidt, 65 Kan. 31, 68 P. 1072.
2. Claim against company for failure to issue policy is assignable. Life Insurance Co. v. Kelso, 16 Kan. 481, 482.
3. Distribution of assets; when payable to wife and children. Felix v. A.O.U.W., 31 Kan. 81, 1 P. 281.
4. Assignment of policy to one having no insurable interest void. Life Ins. Co. v. McCrum, 36 Kan. 146, 12 P. 517.
5. Exemption from taxation; statute construed. Life Association v. Hill, 51 Kan. 636, 645, 646, 33 P. 300.
6. Garnishment; proceeds of policy deposited in bank, exempt from. Emmert v. Schmidt, 65 Kan. 31, 34, 68 P. 1072.
7. Land purchased by beneficiary with proceeds of exempt money not exempt. Pefly v. Reynolds, Sheriff, 115 Kan. 105, 106, 222 P. 121.
8. Life insurance policies free from taxes and creditors of beneficiaries. Ziegler v. Kansas Life Ins. Co., 120 Kan. 252, 255, 243 P. 272.
9. Section not applicable when assured's estate is beneficiary. Shawnee State Bank v. Royal Union Life Ins. Co., 127 Kan. 456, 463, 274 P. 132.
10. Proceeds impressed with trust where premium money obtained by fraud. Exchange State Bank v. Poindexter, 137 Kan. 101, 104, 107, 19 P.2d 705.
11. Cited in discussing right of beneficiary, causing insured's death, to proceeds. Noller v. Aetna Life Ins. Co., 142 Kan. 35, 41, 46 P.2d 22.
12. Section cited in determining divorced wife's rights as beneficiary in insurance policy. Tromp v. National Reserve Life, 143 Kan. 98, 106, 53 P.2d 831.
13. Death of beneficiary before claim paid; executor collects and probate court directs disposition. Elliott v. Grand Lodge, 143 Kan. 146, 53 P.2d 466.
14. Change of beneficiary; contract not to change; proceeds held trust fund. Tivis v. Hulsey, 148 Kan. 892, 894, 84 P.2d 862.
15. Section creates no exemption for property purchased with insurance proceeds. Independence Savings & Loan Ass'n v. Sellars, 149 Kan. 652, 655, 88 P.2d 1059.
16. Proceeds paid beneficiary exempt from liability for assured's debts. Osment v. Trout, 156 Kan. 120, 123, 131 P.2d 640.
17. Surety cannot have principal's insurance applied to indebtedness. Royal Indemnity Co. v. Grand Lodge, A.O.U.W. of Kansas, 60 F.2d 521, 522.
18. Rights of beneficiary causing death of insured considered. In re Estate of Pyke, 199 Kan. 1, 9, 11, 427 P.2d 67.
19. Section does not require proceeds of insurance policy to be paid to beneficiary who kills the insured; common-law rule applied. Harper v. Prudential Ins. Co. of America, 233 Kan. 358, 369, 662 P.2d 1264 (1983).
20. Life insurance proceeds payable to debtor as beneficiary are exempt property. In re Douglas, 59 B.R. 836, 837 (1985).
21. What constitutes "issued" within one year of filing bankruptcy examined; fraud does not require ulterior motive or chicanery. In re Sayler, 68 B.R. 111, 117, 120 (1986).
22. Life policies purchased with nonexempt funds on eve of bankruptcy are exempt, absent showing of intent to defraud. In re Barash, 69 B.R. 231, 233 (1986).
23. Any creditor, with or without "peculiar equity," may attack issuance of policy if fraud can be shown. In re Mueller, 71 B.R. 165, 168 (1987).
24. Life insurance policies cannot be found nonexempt unless bankruptcy court finds debtor intended to defraud creditors. In re Saylor, 98 B.R. 536, 541, 546 (1987).
25. Annuity contracts are not insurance policies, assignment of which are excepted from provisions of uniform commercial code. In re Vinzant, 108 B.R. 752, 756, 757 (1989).
26. Single premium deferred annuity policy not policy of insurance within meaning of section. In re Stutterheim, 109 B.R. 1006 (1988); 109 B.R. 1010 (1989).
27. Kansas exemption for debtor's interest in life insurance policy and reserves extended to benefits as well as cash value. In Re Chadwick, 113 B.R. 540, 545 (1990).
28. Ruling that debtor's life insurance policy was issued within one year of petition was not clearly erroneous. In re Hodes, 308 B.R. 61, 69 (2004).
29. Cited in discussion of insurance proceeds in bankruptcy proceeding and exemptions. In re Hall, 394 B.R. 582, 593 (2008).