December 2, 2023

If you are filing for bankruptcy or considering bankruptcy, you may be feeling a variety of conflicting emotions. You may be worried about your future, made worse by circumstances that force you to file for bankruptcy, or maybe even relieved that you finally have a plan to pay off your debt.

You may be wondering whether you can get life insurance if you go bankrupt, or what declaring bankruptcy might mean for existing policies.

when buying life insurance back Bankruptcy is possible, and managing existing policies during bankruptcy proceedings can be complicated. Read on to learn more about bankruptcy and how it works with current and future life insurance policies.

Does bankruptcy mean you can’t buy life insurance?

No, that said, it can get difficult. This is because insurance companies consider your financial situation and history when deciding whether to issue a policy, and many insurance companies may not offer policies to people who are bankrupt. Those who will offer the policy may offer you a higher premium rate than others of comparable age and health.

Something else to consider is that your available assets will be used in a repayment plan, which may leave you with no money for a new policy.

Are life insurance policies forfeited in bankruptcy?

When you file for bankruptcy, your assets will be evaluated to determine what you can use to pay off your debts. Life insurance policies are often considered assets in bankruptcy proceedings, but this depends on the type of policy you have and the laws in your state. If a creditor can use your policy as a way to collect funds, they may use your life insurance as part of the asset to pay off your debt.

Term life insurance policies generally have no cash value and are considered protected assets. This means they cannot be used to pay off bankrupt creditors. Also, if you name a beneficiary on your policy, payments to the beneficiary are not considered part of your bankruptcy estate and cannot be used to pay your debts.

On the other hand, whole life insurance policies, such as whole life or universal life, do have a cash value component. In other words, you can borrow or withdraw money from the policy while you are alive. In a bankruptcy case, creditors can treat the cash value of a permanent life policy as an asset and use it for repayment. However, the total amount ultimately available to pay off your debt will depend on your state’s exemption status and the cash value in your policy.

Life Insurance Options After Bankruptcy

If you’ve filed for bankruptcy in the past, you may be concerned that you won’t be able to purchase life insurance in the future. Thankfully, that’s usually not the case. You can usually buy life insurance after bankruptcy — however, your options and the cost of coverage may be affected by your bankruptcy filing.

When you apply for life insurance, insurance companies usually ask about your financial history, including whether you have filed for bankruptcy. If you file for bankruptcy, it can affect a life insurance company’s decision to insure you and the cost of your coverage.

In some cases, a bankruptcy filing may result in higher life insurance premiums, especially if the filing is recent. This is because insurance companies may view bankruptcy as a sign of financial instability and therefore consider you to be at higher risk.

The impact of bankruptcy on your ability to purchase life insurance and the cost of your insurance will depend on several factors, including:

  • The type of bankruptcy you are filing for
  • The amount of debt you paid off
  • time elapsed since bankruptcy
  • your overall financial situation

When purchasing a new life insurance policy, you may also be required to undergo a medical exam and provide your medical history — even if the policy does not require such information from individuals who have not historically been bankrupt. This additional measure helps the insurance agency investigate your risk further. Ill health combined with previous bankruptcy may keep you out of coverage.

If you’ve made financial mistakes in the past, term life insurance may be your most affordable route to new coverage. Term life policies have lower premiums than whole life policies because they typically cover you for younger and healthier years than whole life policies until your death.

To learn more and start your path to a safer financial future, consider getting a free online life insurance quote from Haven Life today.