House approves bill protecting life insurance payouts from bankruptcy

House Bill 2221 advanced on a 78-12 vote, with 10 delegates absent. It now goes to the Senate.

The bill would exempt from bankruptcy any unmatured life insurance policy owned by the debtor, other than a credit life insurance contract. Existing state law exempts only the first $8,000 of a payout from a contract owned by the debtor or an individual of whom the debtor is a dependent.

Delegate Steve Westfall, R-Jackson, a State Farm Insurance agent, is the lead sponsor of the bill. He said a large number of states have similar laws.

“I think it puts us in line with 34 other states,” Westfall said. “We’re an outlier with this.”

The bill also would protect all life insurance proceeds paid to the debtor as a beneficiary, as well as any annuities owned by the debtor, including those payable to someone else.

Delegate Adam Burkhammer, R-Lewis, was one of the 12 lawmakers who voted against the legislation. He said the bill is too broad in scope, with no limits on the amount of money or how long it could be exempt.

“I know there are instances where this maybe needs to happen,” Burkhammer said. “Let’s narrow that. Let’s be direct.”

Burkhammer noted a similar bill that died last year in the Senate capped the exemption at $50,000.

“You’re trying to get back on your feet. You’re trying to restart. Fifty thousand dollars is a good compromise to get that done,” Burkhammer said.

He also noted that a $100,000 cap was removed in committee before the bill came to the House floor.

“Now it’s unlimited. It’s saying that whatever life insurance money I receive from that, as a beneficiary, for the life of that money, an unlimited amount is protected from being used to pay my debts,” Burkhammer said. “We’ve got to remember what bankruptcy is. That means that you received things. You received a service. You received a product. And, in return, you are to pay that to someone else.”

Westfall argued that the bill puts West Virginians on an even playing field when it comes to protecting life insurance payouts in a bankruptcy. The state’s wealthy already do it by hiring attorneys who arrange to have the funds put into out-of-state trusts, he said.

“Most of the people in West Virginia cannot afford to do that,” Westfall said.

One of the bill’s other sponsors, Delegate Brandon Steele, R-Raleigh, agreed that the process is relatively simple, for a price. Steele is an attorney.

“Right now, for wealthy people, this isn’t a problem. I can sit down with them, write an irrevocable life insurance trust, have the trust set up in Virginia, Maryland, Kentucky, Tennessee, Pennsylvania, Ohio. I don’t even have to go that far,” Steele said. “So, who are you really helping out with this bill? It’s not the ultra-wealthy who are trying to avoid their obligations. They can already do that.”

Steele said he believes the bill would benefit average West Virginians.

“Remember, what we’re talking about here is unsecured creditors. Secured creditors aren’t going to have a problem with this. They’ve underwritten it. They’ve perfected their security interests. They’re going to get paid regardless,” Steele said.

Delegate Keith Marple, R-Harrison, said businesses thinking of moving into West Virginia will look at the state’s insurance policies as a factor.

“All of these businesses that come in here have a slew of lawyers that work with them. And one of the things they’re going to look at is the insurance law,” Marple said. “And they’re going to advise them that you don’t want to expose your new executives, your new factory owners, your new business owners, the people who work for you, or you, to these laws of West Virginia that would limit only $8,000 going to your heirs if your company or your people would go into bankruptcy.”