A Foreclosure May Hurt Your Life Insurance

You’re probably wondering how foreclosure may hurt your life insurance application. The good news is a foreclosure will not directly hurt your chances of obtaining a policy. While a foreclosure can impact your credit for up to seven years, most life insurance companies do not routinely conduct a credit check as part of the application review process. Scroll down to learn more and get free life insurance quotes with us.

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Tim is a licensed life insurance agent with 23 years of experience helping people protect their families and businesses with term life insurance. He writes and creates stuff for QuickQuote and other insurance and financial websites.

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Benjamin Carr was a licensed insurance agent in Georgia and has two years' experience in life, health, property and casualty coverage. He has worked with State Farm and other risk management firms. He is also a strategic writer and editor with a background in branding, marketing, and quality assurance. He has been in military newsrooms — literally on the frontline of journalism.

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Reviewed by Benji Carr
Former Licensed Life Insurance Agent

UPDATED: Jul 19, 2021

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Foreclosure, short sale, loan modification…? Many homeowners are facing tough decisions about their homes.

A slow economy and high unemployment have combined to leave many struggling to make ends meet. And that includes making monthly mortgage payments.

But here’s what you need to know when it comes to life insurance, whether that’s term insurance, permanent insurance, or another form:

Life insurance companies look at an individual’s current financial status as well as financial history when evaluating applications for coverage.

Companies are mainly concerned about determining the financial justification for the amount of coverage a person has applied for.

However, they are also interested in the overall financial situation of the individual. Keep reading as we dig deeper into whether foreclosures will truly have bearing on your term life insurance application.

How does a foreclosure impact your application for life insurance?

As stated by the U.S. government, foreclosure is “…when a homeowner is no longer able to make mortgage payments as required.”

But here’s the deal: Life insurance companies are not comfortable with applicants that have substantial debt with little supporting assets or insufficient income.

Generally speaking, a foreclosure will not directly hurt your chances of obtaining a policy.

While a foreclosure can hurt an individual’s credit for up to seven years, most life insurance companies do not routinely conduct a credit check as part of the application review process (although they can).

And most companies do not specifically ask about foreclosures on their applications.

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However, it’s important to note some states allow lenders to obtain deficiency judgments against homeowners that walk away from their mortgages. In such cases, lenders will often sue the homeowner to recover the money they lost due to the foreclosure and subsequent bank sale of the home.

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What about bankruptcies?

Bankruptcy is also a considerable concern for most life insurance companies, and nearly all will ask about it at some point during the application process. And let’s be honest — if you’re facing a foreclosure, bankruptcy may very well be on the table.

But keep this in mind: if foreclosure is somehow related to a bankruptcy proceeding or a lawsuit, it could end up being harmful to you when applying for life insurance coverage.

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