Life · Chapter 6 · Settlement Options
Spendthrift Clause
Definition
Protects proceeds held by the insurer from the beneficiary's creditors and from reckless spending — benefits paid in fixed installments. The beneficiary cannot take future payments as a lump sum (commuting) or pledge them for a loan (encumbering).
Exam tip
No effect once proceeds are paid as a lump sum — after distribution, creditors can reach the money.
Easy to confuse with
These are what this term gets tested against — if you can't tell them apart cold, drill the contrast.
Related terms