In what circumstances can a creditor's claims affect the proceeds of a life insurance policy?

The correct answer is based on the principle that a life insurance policy can be subject to creditors' claims when the insured individual has outstanding debts. This means that if the insured owes money to creditors and is unable to pay those debts, the creditors can potentially make a claim against the life insurance proceeds upon the insured's death.

This situation often arises in contexts where the insured's estate is involved, and if the policyholder has not designated the death benefit to someone outside of the estate, such as a beneficiary or a trust, the funds may be vulnerable to claims. It's essential for individuals to understand that the designation of beneficiaries on a policy can help protect the proceeds from being used to settle the insured’s debts in some cases. Therefore, the occurrence of claims against the insured is a critical factor that affects the life insurance proceeds.

In contrast, the other options do not accurately capture the legal framework governing creditors’ claims on life insurance proceeds. For instance, simple consent from the policyholder or having multiple debts does not automatically mean that creditors can access the life insurance funds. Additionally, non-payment of premiums leads to potential policy lapse, which prevents any payout from occurring in the first place and does not involve creditors’ claims directly.