Are Annuities Protected from Creditors & Lawsuits?

By Brent Meyer — SafeMoney.com Founder & Editor Reviewed by Licensed Financial Professionals  |  SafeMoney.com — Trusted Since 2011  |  Updated Regularly Quick Answer: Annuities can offer meaningful protection from creditors and lawsuits, but the strength of that protection depends entirely on your state. Florida and Texas provide the most comprehensive exemptions — annuity funds are generally untouchable by creditors under any circumstances in those states. Most other states offer limited or conditional protections, and federal bankruptcy exemptions also apply under certain conditions. The critical rule: asset protection planning must be in place before any lawsuit or creditor action begins. Annuities are contracts between you and an insurance company. As the policyholder, you are entitled to certain guarantees provided to you by your life insurance company. You can enjoy guaranteed income for life , guaranteed growth, guaranteed protection against market risk, or a guaranteed death benefit, among many other benefits. Annuities also give the benefit of tax-deferred growth until you start withdrawing money from them. And beyond those accumulation and income benefits, annuities can also provide you with certain protections against creditors. However, this helpful protection characteristic of annuities can vary by state. Here is a closer look at how annuities can offer various creditor protections if you are concerned about the exposure of your assets or money. State Exemptions for Annuities In some states, annuities are unconditionally exempt from seizure by creditors or bankruptcy court. States such as Florida and Texas have laws that prevent creditors from seizing any money that is held inside an annuity or cash value life insurance policy. These two states maintain these statutes in order to protect the large number of retirees who live in those states and depend upon the income from annuities to cover their living expenses. As for the rest of the states, exemption from seizure can vary from one case to another depending upon the circumstances. Some states offer limited or no creditor protection for annuity contracts. An annuity that qualifies for protection in one state might not be eligible in another state due to a single term or condition. Those terms can include whether the annuity has a qualifying event that triggers eligibility, or whether the series of payments from the annuity exceeds a specified amount under that state&#