Lundberg bill would increase exemption on life insurance money

By Cindy Brovsky

Coloradans could see the amount of life insurance money exempted from creditors double under a proposed bill.

Sen. Kevin Lundberg, R-Berthoud, says his proposal to bump the exemption to $100,000 from $50,000 is a way to balance the financial needs of the heirs with creditors.

“I’m trying to get Colorado in line with what other states are at,” Lundberg said. “Life insurance is something that people buy to protect their families.”

However, the Colorado Trial Lawyers Association opposes the measure that one member dubbed as the “Bernie Madoff Protection Bill” because of possible abuses. The bill states the insurance policy must be purchased four years prior to a financial lawsuit being filed against the policy owner.

Still, someone trying to avoid creditors may purchase a large insurance policy just prior to a lawsuit being filed to avoid payment, said Dan Patterson, past president of the lawyers association.

“This is bad public policy,” said Patterson said. “Our view is that four years is little protection from a legal system that moves too slowly.”

The association successfully lobbied to have Lundberg’s initial bill — which included exemptions for annuities as well — rewritten but they still plan to fight the proposal. Annuities are considered more of an investment with some owners receiving interest rate payments and other income over the life of the annuity, Lundberg said.

“I changed the bill to try and get something passed,” said Lundberg, who was asked by the insurance industry to sponsor the measure. “This is a matter of give and take and the possibility of what we can agree upon.”

Colorado first exempted life insurance from creditors in 1959 when the cap was set at $5,000. That increased to $25,000 with the last cap set at $50,000 in 2002. Creditors still can go after other assets, such as bank accounts, if there are outstanding bills when someone dies.

“In 1959, you could buy a nice house for $5,000,” Lundberg said. “That can’t be said for $100,000 in 2010.”

The trial lawyers association argues that the bill is just one more way for insurance companies to market their policies at the detriment to legitimate lawsuits, Patterson said.


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