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How does declaring bankruptcy affect your life insurance?

Whether you have a policy in place or are thinking of getting one, here’s what you should know

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If you’re filing for bankruptcy or considering bankruptcy, you probably feel a mix of conflicting emotions. You might be worried about your future, aggravated by the circumstances forcing you to file for bankruptcy, or even relieved to finally have a plan for paying off your debt.

You may be wondering if you can get life insurance if you’re bankrupt, or what declaring bankruptcy might mean for an existing policy.

While buying life insurance after bankruptcy is possible, managing a current policy during bankruptcy proceedings can become complicated. Keep reading to learn more about bankruptcy and how it works with current and future life insurance policies.

In this article:

Does bankruptcy mean you can’t buy life insurance?

No. That said, it might become difficult. This is because insurers consider your financial status and history when deciding whether to issue a policy, and many insurers might not offer a policy to someone in bankruptcy. Those who will offer a policy will likely offer you higher premium rates than someone else of comparable age and health.

Something else to consider is that your available assets will be put in service of a repayment plan, which might leave you without the money to pay for a new policy.

Are life insurance policies subject to seizure in bankruptcy?

When you file for bankruptcy, your assets are evaluated to determine what you can use to repay your debts. Life insurance policies are typically considered assets in bankruptcy proceedings, but it depends on your policy type and the laws in your state. If it’s possible for creditors to use your policy as a way of collecting funds, they may use your life insurance as a portion of assets to pay off your debts.

Term life insurance policies typically have no cash value and are considered protected assets. This means they cannot be used to repay creditors in bankruptcy. Additionally, if you have named a beneficiary on your policy, the payout to the beneficiary is not considered part of your bankruptcy estate and cannot be used to repay your debts.

On the other hand, permanent life insurance policies, such as whole or universal life insurance, do have a cash value component. In other words, you can borrow or withdraw money from the policy while you are still alive. In a bankruptcy case, creditors may consider the cash value of a permanent life insurance policy as an asset and use it for repayment. However, the total amount that can end up going toward repaying your debts will depend on the exemptions available in your state and the amount of cash value in the policy.

Life insurance options after a bankruptcy

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

When you apply for life insurance, the insurer will typically ask you about your financial history, including whether you have filed for bankruptcy. If you have filed for bankruptcy, it could impact the life insurer’s decision to offer you coverage and the cost of the coverage.

In some cases, a bankruptcy filing may result in higher premiums for life insurance, especially if the filing was recent. This is because the insurer may view bankruptcy as an indication of financial instability and thus consider you a higher risk.

Bankruptcy’s impact on your ability to buy life insurance and the cost of the coverage will depend on several factors, including:

You might also be required to take a medical exam and provide your medical history when buying a new life insurance policy — even if the policy wouldn’t require such information from individuals without bankruptcy in their history. This added measure helps the insurance agency further investigate your risk. Poor health combined with a previous bankruptcy may exclude you from coverage.

If you’ve made financial mistakes in the past, a term life insurance policy will likely be your most affordable route to new coverage. Term life insurance policies have lower premiums than whole life policies because they generally cover the years when you’re younger and healthier, as opposed to whole life policies that remain in place until you die.

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

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About Sarah Horvath

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Our editorial policy

Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our editorial policy

Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.

Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.

Our disclosures

Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.

MassMutual is rated by A.M. Best Company as A++ (Superior; Top category of 15). The rating is as of Aril 1, 2020 and is subject to change. MassMutual has received different ratings from other rating agencies.

Haven Life Plus (Plus) is the marketing name for the Plus rider, which is included as part of the Haven Term policy and offers access to additional services and benefits at no cost or at a discount. The rider is not available in every state and is subject to change at any time. Neither Haven Life nor MassMutual are responsible for the provision of the benefits and services made accessible under the Plus Rider, which are provided by third party vendors (partners). For more information about Haven Life Plus, please visit: https://havenlife.com/plus

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