Today I am still chatting with friends in the group about insurance issues, and one friend's explanation is very on point; buying life insurance is a hedge against one’s earning ability.

I jokingly said that this type of insurance is most suitable to buy before a big bet; in the past, bankruptcy meant jumping off a building, which solved nothing. If insurance has been purchased, even if one jumps off a building, it can still provide a guarantee for the family.

The most important thing is that under normal circumstances, the insurance payout itself will not be automatically taken away by creditors due to debt; of course, it depends on the type of debt, asset structure, local laws, and whether the court recognizes malice in avoiding debt.

First type: normal debt (mortgage, personal loan, business debt)

Assuming one owes the bank 5 million dollars, and the beneficiary of the life insurance is designated as the child, the insurance company pays out 10 million dollars upon death.

If the beneficiary of this policy has been designated, and the insurance payout is paid directly to the beneficiary according to the law, then this insurance payout typically will not enter the estate, and creditors generally cannot demand the insurance company to pay off the debt from it, just like they would with an estate.

This is also an important reason why many high-net-worth individuals use life insurance for wealth transfer.

Second type: estate needs to settle debts

If no beneficiary has been designated or the insurance payout is treated as part of the estate, then the insurance payout may first enter the estate.

In this case, creditors have the opportunity to demand repayment from the estate.

Third type: malicious asset transfer

For example, if one is already insolvent, or if after buying insurance one borrows money to put all the cash into insurance and then goes bankrupt or dies a few months later, the court is likely to see this as a deliberate transfer of assets, harming creditor interests.

In this situation, the court may require the transaction to be voided or demand the recovery of part of the insurance benefits.

Fourth type: characteristics of Singapore law (most important)

Singapore’s protection for life insurance beneficiaries is more comprehensive compared to many jurisdictions.

If it complies with relevant provisions of the Insurance Act, such as designating a spouse or children as irrevocable beneficiaries (under certain specified methods), the insurance benefits may form a statutory trust, with the insurance payout directly belonging to the beneficiary, rather than becoming part of the policyholder’s estate, thus usually able to be separated from the estate.

However, in cases of fraud, money laundering, malicious debt evasion, etc., recognized by the court as fraudulent asset transfer, creditors can still apply to the court for relief.

So essentially, as long as there is no issue of misappropriation of public funds, there is not much of a problem, and life insurance and trusts are still very different; trusts can have many pitfalls, even in Singapore, but life insurance has relatively fewer. Moreover, the popularity of this kind of insurance in Singapore is already very high; basically, banks and insurance companies are all selling it.

The main difference lies in leverage; for example, if I can live to 130 years old, then I can receive leverage income 36 times, and of course, if I cannot live very long, I can still get leverage income 10 times—if I die immediately, I get paid immediately.

PS: Do not use the Chinese insurance mindset to make judgments; in China, the final interpretation of insurance is held by the insurance company.

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