Treatment of cash surrender value in policyowner bankruptcies in China

Abstract Cash value insurance policies constitute an important type of policyowners' assets. In cases where policyowners become insolvent and enter bankruptcy proceedings, a key question arises as to whether the cash surrender value (CSV) of such policies may be collected to satisfy creditor claims and, if so, how. In China, under the current legal framework, deficiencies in this regard not only create ambiguities and controversies but also fail to adequately balance the interests of relevant parties. To improve the status quo, drawing on a comparative analysis of certain aspects of the experience in the United States and the Taiwan region, this article proposes a streamlined mechanism for the treatment of the CSV in the context of policyowner bankruptcy. Basically, policyowners should be entitled to the CSV only when they are, or are likely to become, beneficiaries. In bankruptcy proceedings, the CSV of an insurance policy belonging to a debtor‐policyowner should form part of the debtor's estate that is subject to creditor claims, and bankruptcy administrators may seek to surrender the policy and realise its CSV from the issuing insurer in the debtor‐policyowner's stead. In addition, the right of subrogation should be introduced, enabling parties with an insurable interest in the insured to prevent the policy from being surrendered by paying an amount equal to the CSV and thereby becoming the new policyowner. In this way, the interests of all relevant parties connected to the insurance policy can be appropriately balanced.