Buying Term Life Insurance After Bankruptcy

QuickQuote Term Life Insurance Blog

People often file bankruptcy to erase their overwhelming debt. But bankruptcy can have adverse effects on your term life insurance premium. Read on to find out what kind of repercussions bankruptcy can have on your insurance rates.

Bumps of Bankruptcy

If you own an existing life insurance policy, it will be left untouched by the bankruptcy court to safeguard the interests of the beneficiaries. If you own a permanent life insurance policy, you will be allowed to retain only a portion of the cash value that has accumulated on it. How much you are entitled to keep upon declaring bankruptcy depends on the state where you live. You have to surrender the policy in the court if you have taken out a life insurance policy in the name of your spouse or children.

Insurance Company Guidelines

The first few years of a policy are the most expensive for a life insurance company and their high up-front costs make them very cautious when approving applications. Companies typically look at your bankruptcy as lack of responsibility, and they may consider you a high-risk customer.

Like everything else considered during underwriting, guidelines on bankruptcy vary. If you are currently in bankruptcy, you won’t be able to qualify for a new term life policy. Most companies will wait to approve your application until your bankruptcy has been discharged for one year.

Buying After Bankruptcy

Your bankruptcy will follow you for up to ten years. Because term life insurance is a purchase that should not be put off, waiting out for a decade until your credit report stops reflecting your bankruptcy is not advisable. The better option is to buy a 10-year term life insurance policy. At first, you will pay higher premiums, but it is better than putting your family’s welfare at risk. Once your bankruptcy no longer shows on your credit report you can ask your term life insurance company to review your policy as you will qualify for lower premiums.

The good news is that there are term life companies out there who will look favorably on your case if they know that your bankruptcy has been completely discharged. Our licensed insurance professionals will help you identify these companies and help find the best one for you.

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