Florida law protects two financial products that a lot of people never think about until they are in trouble: the cash surrender value of life insurance, and annuities. Against ordinary creditors, the protection is strong. I have met Tampa business owners who were told by a salesperson that a big whole-life policy or an annuity was a way to “protect assets.” Against the IRS, that advice fails.

Here is what Florida law protects, what federal law does instead, and how the IRS actually goes after cash value and annuities.

What Florida protects

Fla. Stat. 222.14 says the cash surrender values of life insurance policies issued on the lives of Florida citizens or residents, and the proceeds of annuity contracts issued to Florida citizens or residents, shall not in any case be liable to attachment, garnishment or legal process in favor of any creditor of the insured or of the annuity beneficiary, unless the policy or contract was effected for the benefit of that creditor.

A related statute, Fla. Stat. 222.13, says that when a Florida resident dies, life insurance proceeds payable to a named beneficiary are exempt from the claims of the insured’s creditors, unless the policy or a valid assignment provides otherwise. Proceeds payable to the estate become part of the estate.

Together, those statutes make cash value and annuities one of the more protected asset classes in Florida, alongside homestead and retirement accounts.

Why the IRS is not bound

The federal tax lien under IRC 6321 attaches to all property and rights to property of the taxpayer. Your right to borrow against or surrender a policy, and your right to receive annuity payments, are rights to property.

For levy, IRC 6334(c) says nothing is exempt except what IRC 6334(a) lists. Life insurance cash value and commercial annuities are not on that list. Treas. Reg. 301.6334-1(c) makes the point directly: no provision of state law may exempt property from levy for the collection of any federal tax. Fla. Stat. 222.14 is a state exemption. My guide on Florida exemptions versus IRS levies covers the full list.

The special federal rule for life insurance

Life insurance is awkward property to levy. The IRS does not want to own your policy. It wants the money in it. Congress wrote a specific provision for that: IRC 6332(b).

Under IRC 6332(b), a levy on an organization with respect to a life insurance or endowment contract it issued constitutes, without the need to surrender the contract document, a demand by the IRS for payment of the amount the person against whom the tax is assessed could have had advanced under the contract, and the exercise of that person’s right to the advance. The insurer must pay over that amount 90 days after service of the notice of levy.

In plain English:

  1. The IRS serves a levy on the insurance company.
  2. The levy acts like you requested a policy loan for the maximum amount available.
  3. The insurer waits 90 days, then pays that amount to the IRS.
  4. The policy generally stays in force, now with a loan against it, unless the loan causes it to lapse under its own terms.

Treasury Regulation 301.6332-2 provides the details. The 90-day period exists for a reason: it gives you time to pay the tax, arrange an agreement or otherwise get the levy released before the insurer pays. For a Tampa family that needs the policy for its death benefit, that window matters.

Annuities

Annuities do not have a special levy rule like 6332(b). They are handled under the general levy rules. The IRS can levy on payments due to you under the contract. Depending on the contract, it may also be able to reach a surrender or withdrawal value that you have the right to demand. A Form 668-A served on the issuer attaches to what the issuer owes you at that moment. A continuous levy under IRC 6331(h) is available for certain specified payments, but most private annuity payments are reached through ordinary levies or repeated levies.

Annuities inside retirement accounts raise separate questions about levying retirement assets, discussed in my guide on Florida retirement accounts and the IRS.

Moving money into a policy after the tax debt

Sometimes the cash value got there recently. A business owner owes the IRS, sells a property, and puts the proceeds into a single-premium policy or annuity because he heard Florida protects it.

That move has two problems. First, as explained above, the IRS can reach the value anyway. Second, it creates evidence. Fla. Stat. 222.30 addresses fraudulent asset conversions into exempt forms against Florida creditors, and 222.29 denies Chapter 222 exemptions created by fraudulent transfers. More importantly for federal purposes, the IRS will count the value in any offer in compromise, and IRM 5.8.5.18 lets it treat assets dissipated in disregard of the tax liability, generally within the past three years, as part of reasonable collection potential. Surrender charges you incurred do not reduce what the IRS thinks you should be able to pay. My guide on sheltering cash in a homestead makes the same point about real estate.

Cash value in an offer or payment plan

When you file a collection information statement, Form 433-A asks about life insurance with cash value. Disclose it. In an offer in compromise, the IRS generally counts the cash or loan value available to you as an asset in reasonable collection potential under IRM 5.8.5. It may suggest you borrow against the policy to pay.

That is not always a bad trade. A policy loan may cost less than IRS penalties and interest, and it can fund a payoff or a lump-sum offer while keeping the death benefit in place. The math depends on the policy, the loan rate and your health. Look at it before you assume the policy has to be surrendered.

Death benefits and beneficiaries

The federal tax lien attaches to the taxpayer’s rights. Once the insured dies, proceeds payable to a named beneficiary belong to the beneficiary. Federal law has its own rules for collecting a decedent’s taxes, and those can reach beneficiaries in some situations, but that is a different topic from levying a living taxpayer’s cash value. The 6332(b) rule is about the cash value while the insured is alive.

A Tampa illustration

Consider a hypothetical retired contractor in Carrollwood who owes the IRS from his last years in business. He owns a whole-life policy with a cash value of about $60,000 and wants to keep the death benefit for his wife.

If he ignores the IRS, a Revenue Officer who sees the policy on his financial statement can serve a levy on the insurer. Under IRC 6332(b), 90 days later the insurer pays the IRS the available loan value, and the policy carries a large loan from then on. If the loan plus interest eventually exceeds the cash value, the policy may lapse.

If he plans ahead, he can compare options: a policy loan he controls to fund a payment arrangement, an offer in compromise that accounts for the cash value, or a monthly agreement that leaves the policy alone. The outcome is not guaranteed in any scenario, but the planned approach keeps the decisions in his hands instead of the insurer’s levy department.

Practical points

  • If you receive notice that the IRS has levied your insurer, call immediately. The 90-day window is your best chance to resolve the debt before the cash value is paid out.
  • Get an in-force illustration showing current cash value, loan value and loan balance before you talk to the IRS.
  • Do not buy a new policy or annuity with money you owe the IRS. It will not protect the money and it will hurt your credibility.
  • Consider whether a policy loan you control is better than a levy the IRS controls.

GetIRSHelp.com has more about IRS levies.

Florida made life insurance a safe harbor against creditors. Congress made sure the IRS has a dock in that harbor, and it gave the insurer 90 days to tie up.