Foreclose, 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. In December of 2010, 1 of every 501 housing units in the US received a foreclosure filing, according to RealtyTrac.
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 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. Life insurance companies are not comfortable with applicants that have substantial debt with little-supporting assets or insufficient income.
Should You Walk?
So, how does a foreclosure impact your application for life insurance? 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.
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.
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. So if a 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.