Buying Term Life Insurance After Bankruptcy

Life insurance and bankruptcy are not topics that are oftened discussed together. However, filing for bankruptcy can have a direct influence on whether you qualify for term life insurance rates as low as $11.03/per month. Knowing how to secure insurance early will allow you to navigate bankruptcy and insurance and keep your family protected.

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Schimri Yoyo is a financial advisor with active life and health insurance licenses in seven states. Born in Haiti. Reared in Brockton, MA. Matured in Philadelphia. Schimri is a proud graduate of Arcadia University, having earned both a Masters in Special Education and an MFA in Creative Writing from the castle-riddled campus in Glenside, PA. By personality and by profession, Schimri is an educator...

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UPDATED: Sep 20, 2020

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Filing for bankruptcy can have adverse effects on your term life insurance quotes and premiums. It is important to know how bankruptcy and life insurance policies relate.

Life insurance and bankruptcy are not often considered together. However, understanding what happens to your policy if you file for bankruptcy or if your insurance provider files for bankruptcy is important. This article will explain both scenarios and help to keep you prepared. 

Bankruptcy and insurance are not small matters. Both provide protections in worst case situations.

Learn how to protect your family’s financial future right now and get a quick quote using our free rate toolThen read on and see how your policy can be a useful asset to have if you ever do file for bankruptcy. 

How does bankruptcy affect life insurance policy?

Bankruptcy is a court proceeding that involves examining your assets and debts. The court decides if you have the means to pay all, some or none of your debt. Filing bankruptcy is a serious step with long-term credit and financial consequences, so it should be used as a last resort.

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. So bankruptcy can affect any policies you have on your spouse or children.

However, if you secure a term life insurance plan early, you will not only save on your premiums, but you will maintain a secure policy even after filing a bankruptcy claim.

Check out these rates to see how much you can save if you lock in term life insurance today.

Age$100,000: Male$100,000: Female$250,000: Male$250,000: Female$500,000: Male$500,000: Female
25$11.03$10.02$22.10$12.91$23.19$19.04
30$11.12$10.07$15.31$13.02$23.85$19.26
35$11.12$10.07$15.42$13.02$24.07$19.26
40$12.65$11.12$17.94$15.21$29.10$23.63
45$14.57$13.31$21.55$19.69$36.32$32.60
50$18.60$17.20$30.19$27.02$53.60$47.26
55$24.51$20.61$42.88$34.35$78.98$61.91
60$35.88$27.48$71.10$50.86$135.41$94.94
65$51.06$37.76$109.82$75.14$212.85$143.51
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As you read on, you’ll see why purchasing insurance earlier on will keep your family secure even if you run into financial troubles.

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Types of Bankruptcy

You may ask, does filing for bankruptcy ruin your life? Well it is important to know the benefits and the risk associated with filing bankruptcy. There are several types of bankruptcy, one which is chapter 7 and another is chapter 13.

A Chapter 7 bankruptcy governs the process of liquidation under the bankruptcy laws of the United States and is the most common form of bankruptcy in the United States.  Chapter 7 requires a repayment plan but does require you to liquidate or sell nonexempt assets to pay back creditors.

A Chapter 13 bankruptcy eliminates qualified debt through a repayment plan over a three- or five-year period. This may make you wonder whether you can get life insurance after filing bankruptcy. The answer is yes.

Since Chapter 13 is not as severe as Chapter 7, you may be able to successfully apply for life insurance before the bankruptcy has been discharged. Some carriers only offer limited coverage if your Chapter 13 bankruptcy hasn’t been discharged. Others may offer you full coverage.

Other forms of bankruptcy that you may have heard of like Chapter 11 are usually applicable to businesses or other entities and wouldn’t apply for individuals.

Can life insurance be seized by creditors?

Life insurance is an asset and so when it comes to bankruptcy and life insurance, courts will review assets and make decisions on whether the assets are exempt. In general, your life insurance will be considered in one of the following scenarios.

  • In most cases, standard life insurance policy proceeds are exempt from creditors
  • Proceeds may not be exempt if your spouse is your beneficiary and you co-signed certain types of loans
  • Is a life insurance beneficiary responsible for debt? Once your beneficiary receives your life insurance death benefit, those funds could be claimed by creditors seeking money they owe (depending on state regulations)

Term life insurance policies do not have any cash asset value and are considered during bankruptcy proceedings. 

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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 with life insurance life insurance underwriting guidelines, your individual situation will affect your rate.

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.

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Life Insurance Cash Value with Bankruptcy

The cash value of your life insurance policy is therefore one of your assets; it is something you own that can be liquidated and has a value.

When dealing with a life insurance policy in bankruptcy, the cash value is a type of asset that is protected, up to a certain amount, by your bankruptcy exemptions.

Buying Life Insurance 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.

Insurance Companies and Bankruptcy

The other side of the coin is what do in the case of a life insurance agent bankruptcy or a bankruptcy of a company that issued your insurance policy? Do life insurance companies go out of business?

When there is an economic slump individuals are not the only ones affected, many businesses are also affected. You may be wondering what happens if my life insurance company goes bankrupt? I

f or when you get word that your life insurance company is filling bankruptcy it is important to start looking another reliable company.

You can also ask the life insurance company if they are giving anything back to their customers for years paid or if it can be switched to another company they may partner with.

Unfortunately, there is no insurance for bankruptcy for individuals or corporations. 

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The Bottom Line

When it comes to bankruptcy it is important to understand the ends and outs and what exactly bankruptcy can affect. Depending on the type of policy it can be considered as income.

It is important to know the differences. Keep in mind that you can change your beneficiary on your life insurance policy at any time even before filing bankruptcy.

Of course securing a term life policy now will allow you to protect your family before and even after a bankruptcy.  Why wait another minute?

Start comparing rates with our free rate generator and protect the ones you love today.

Frequently Asked Questions: Bankruptcy and Life Insurance

Below are some frequently asked questions that you may have about filing bankruptcy and life insurance.

# 1 – Is life insurance policy considered an asset?

Yes, life insurance is considered one of your biggest cash assets.

# 2 – How much does a $10000 life insurance policy cost?

This would depend on the company you choose to get life insurance from. All life insurance companies range in price.

# 3 – Can you lose money on life insurance?

No you can not lose money on life insurance as long as your premiums are paid up.

# 4 – When should you get rid of life insurance?

You should never get rid of life insurance because it has many benefits for you and your family in the event of your passing.

References:

  1. https://www.ovlg.com/blog/does-filing-bankruptcy-affect-your-life-insurance-rate

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