Under a Hawaii debtor group life policy, the insured debtor dies when the insurance benefit is greater than the debtor's remaining unpaid indebtedness. After the creditor's debt is satisfied, the excess insurance proceeds must generally be:
A.
retained by the creditor
B.
paid to the insurer
C.
paid to a beneficiary named by the debtor or to the debtor's estate
C is correct. Hawaiʻi's debtor group life provisions recognize that the creditor's legitimate insurable interest is principally the amount of the outstanding indebtedness . Under HRS §431:10D-203, insurance payable to the creditor reduces or extinguishes the unpaid debt to the extent of the payment. If the amount of insurance exceeds the remaining indebtedness, the excess does not become a windfall to the creditor. Instead, it must generally be payable to a beneficiary other than the creditor named by the debtor, or to the debtor's estate .
This reflects the fundamental purpose of debtor group life insurance: protect the credit obligation while preserving any insurance value exceeding the debt for the debtor's beneficiary interests.
For example, if the debtor dies owing $15,000 and qualifying group life insurance pays $20,000, $15,000 can satisfy the debt. The remaining $5,000 is handled according to the statutory beneficiary rule rather than being retained by the creditor.
Options A and D would improperly permit the creditor to receive funds beyond its remaining economic interest. Option B is also incorrect because the insurer's obligation is to distribute contractual proceeds rather than retain the excess.
Reference topics: HRS §431:10D-203; Debtor Group Life; Creditor Benefits; Beneficiary Rights; Group Life Insurance.
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