There is considerable diversity in state law as to the length of time proceeds payable under a life insurance policy are exempt from creditors� claims and the amount of physical change proceeds can undergo without losing their exempt status. With respect to claims of the insured�s creditors, proceeds are generally regarded to be exempt as long as they can be identified as such. For example, the courts have almost universally extended the exemption to cover the bank account into which the exempt proceeds have been deposited. Furthermore, it has been held that real estate purchased with exempt insurance proceeds is not subject to creditors� actions.

The law is similarly diverse with respect to claims of the beneficiary�s creditors. Some statutes that extend their cloak of protection to such claims state specifically that life insurance policy proceeds are exempt from claims of creditors, whether of the insured or the beneficiary, both before and after receipt by the beneficiary. Other statutes do not state that the proceeds are exempt while in the hands of the beneficiary, and the question may be raised as to whether under such statutes proceeds are protected against the beneficiary�s creditors after the beneficiary receives the proceeds, particularly as to debts created after receipt. Finally, it seems clear that the protection afforded the beneficiary under a spendthrift clause, even though sanctioned by statute, does not extend beyond the instant of receipt of the proceeds.