Creditors may have a claim on the proceeds of which type of financial arrangement?

Creditors may have a claim on the proceeds of life settlements because these arrangements involve selling an existing life insurance policy to a third party for more than its cash surrender value but less than its face value. When individuals enter into a life settlement, they receive immediate cash, which may become part of their financial assets. If the individual faces financial difficulties or bankruptcy, creditors may seek to claim the proceeds from the settlement, as it can be considered a part of the individual's estate or assets that can be liquidated to satisfy debts.

In contrast, term life insurance and whole life policies typically have protections in place in many states that exempt the death benefits from creditors when they are paid to a designated beneficiary. Pension plans, too, often have specific protections under federal laws such as ERISA that prevent creditors from accessing those funds. Understanding the nuances of financial arrangements and how they can be affected by creditor claims is crucial for individuals managing their assets and debts.