Yes, they are. Similar to IRAs and other retirement accounts, annuities are protected from creditors in the event of bankruptcy. An earlier blog post discussed retirement accounts and what bankruptcy protections apply to them in further detail. However, annuities and life insurance policies are forms of asset protection which many Tennessee residents may not be as familiar with.
The amount payable under a life insurance policy or annuity that is for the benefit of, or assigned to, your spouse, children and/or other dependents, is exempt from the claims of creditors. This includes not only the death benefits to be paid out by the policy but also the annuity or cash surrender value of the policy.
Certain policies, such as whole life insurance policies, have a cash value that builds over time. A portion of the cash value is available to the insured to be withdrawn or borrowed against throughout the life of the policy. Therefore, by depositing monies into life insurance or similar annuity accounts, you can protect those assets from creditors while potentially maintaining access to the funds.
According the investment website Motley Fool, however, this type of asset protection is not something to be done last minute. In fact, purchasing such an annuity account at the same time you are filing for bankruptcy may look like an attempt to defraud creditors. But if you are coming out of a bankruptcy or are otherwise looking for long range financial planning solutions, an annuity can be a successful tool for asset protection.