Does bankruptcy affect life insurance? It sure can. Shoppers are often shocked to hear that their financials are factored into the life insurance process. There are many factors involved – some more obvious than others. What is the best life insurance company for bankruptcies? It will depend on several things. Your health, family history, any dangerous activities or jobs you have, and your financials are just a few.
The details of all these factors will play a role in how a life insurance underwriter will grade how much of a risk you present them. The end result is that they will offer or deny you a policy based on these risks. It will also determine how much you’ll pay if offered.
PROS
Not all life insurance companies look at bankruptcy the same as some are more lenient than others
CONS
Most life insurance companies deny applications until bankruptcy has been discharged for at least 24 months
Bankruptcy is looked at as “risky” even by the top life insurance companies, but you may still be able to purchase a life insurance policy. That’s the good news. Unfortunately, you may have to wait before you can apply.
Applying for life insurance after bankruptcy
For the most part, if you’ve filed for bankruptcy and it has not been discharged – it’s going to be hard getting a life insurance application approved.
Once your bankruptcy is discharged the ability to secure a life insurance policy will depend on which life insurance company you apply with. Each life insurance company has a different timeframe after your bankruptcy discharge. This is where an independent life insurance agent can be extremely helpful because they have access to multiple companies – not just one. Your agent will help find the best company for your specific type of bankruptcy.
Application Stategy
- Wait 12 months if you filed for Chapter 7
- Inform your agent about your bankruptcy
- Provide the dates of when you filed and was discharged
- Provide your agent your current budget
Bankruptcy Type Affects Your Eligibility
Did you file for Chapter 7, Chapter 11, or Chapter 13? The type of bankruptcy that you file may make it easier or more difficult to buy a life insurance policy. Some life insurance companies won’t be as strict with a Chapter 13 bankruptcy compared to a Chapter 7. Some companies have the same rules no matter how you filed.
Let’s take a look at how some of the top life insurance companies look at each type of bankruptcy.
Life Insurance after Filing Chapter 7 bankruptcy
Chapter 7 bankruptcies are the most common form of bankruptcy. It allows debtors to get rid of most of their debts and begin with a clean slate. Unfortunately, life insurance companies see it as a risk because you may have difficulty paying your premiums. The end result is that they typically will decline your life insurance application. You usually need to wait 2 years after your bankruptcy has been discharged.
Here are how some carrier’s look at a Chapter 7 bankruptcy:
| Company | APPLICATION OUTCOME |
| AIG | Application denied until bankruptcy has been discharged for at least 24 months |
| American National | Application denied until bankruptcy has been discharged for at least 24 months |
| Brighthouse | Application denied until bankruptcy has been discharged for at least 12 months |
| John Hancock | Bankruptcy must be discharged; Approval is case by case |
| Banner | Deny until after discharge if you have strong financials |
| Lincoln National | Bankruptcy must be discharged; Approval is case by case |
| North American | Bankruptcy must be discharged; Approval is case by case |
| Pacific Life | Application denied until bankruptcy has been discharged for at least 12 months |
| Protective Life | Application denied until bankruptcy has been discharged for at least 24 months |
| Prudential | Approvals are case by cases before & after bankruptcy discharges |
| SBLI | Application denied until bankruptcy has been discharged, often for at least 24 months |
| Securian Financial | Denied until discharged for 12 months, but possible consideration within 1 year with good credit, employed, repayment plan |
| Symetra | Denied until discharged for 12 months, but possible consideration within 1 year |
| Transamerica | Bankruptcy must be discharged or will be denied |
| United of Omaha | Bankruptcy must be discharged or will be denied |
Life Insurance after Filing Chapter 11 bankruptcy
Chapter 11 bankruptcy is available to individuals, corporations and partnerships who are needing a form of bankruptcy reorganization. Chapter 11 is the preferred choice for big businesses looking to restructure their debts. One of the ways life insurance is used for business is to get a policy on a business partner or key person in the corporation.
If you’re filing Chapter 11, then this can problematic when applying for life insurance. Companies look at Chapter 11 similarly to Chapter 13 in that they’re usually less strict compared to Chapter 7. It’s always promising if you’re able to show strong financials.
Here are how some carrier’s look at a Chapter 11 bankruptcy:
| CARRIER | APPLICATION OUTCOME |
| AIG | Application denied until bankruptcy has been discharged for at least 24 months |
| American National | Application denied until bankruptcy has been discharged for at least 24 months |
| Brighthouse | Applicants with good financials may be considered |
| John Hancock | Application approval is based on each case after discharge |
| Banner Life | Applicants with good financials may be considered |
| Lincoln National | No information |
| North American | Applicants with good financials may be considered |
| Pacific Life | Application denied until bankruptcy has been discharged for at least 12 months |
| Protective Life | Application denied until bankruptcy has been discharged for at least 12 months |
| Prudential | Application approval based on per case before & after discharge |
| SBLI | No details |
| Securian Financial | Application denied until bankruptcy has been discharged for at least 12 months |
| Symetra | No details |
| Transamerica | Applicants with repayment plan and good financials may be considered |
| United of Omaha | Application denied until bankruptcy has been discharged |
Life Insurance after Filing Chapter 13 bankruptcy
Chapter 13 bankruptcy is a type of financial reorganization plan. It helps protect the debtor from collection throughout the case and discharges almost all of the remaining balances when it’s finalized. The Chapter 13 discharge covers a few types of debts that can’t be discharged with a Chapter 7.
A Chapter 13 is not looked at as severely as a Chapter 7 by most life insurance companies. It’s even possible to put in a life insurance application before your Chapter 13 bankruptcy has been discharged. Just be aware that some insurers will not offer full coverage with Chapter 13 until it’s been discharged. All applications will be considered on a case by case basis.
Here are how some carrier’s look at a Chapter 13 bankruptcy:
| CARRIER | APPLICATION OUTCOME |
| AIG | Application denied until bankruptcy has been discharged for at least 24 months |
| American National | Evaluate 6 months after filing bankruptcy |
| Brighthouse | Applicants with good financials may be considered |
| John Hancock | Bankruptcy must be discharged; Approval is case by case |
| Banner Life | Applicants with good financials and repayment plan may be considered |
| Lincoln National | Applicants with good financials may be considered |
| North American | Applicants with good financials may be considered |
| Pacific Life | Applicants with a repayment plan may be considered |
| Protective Life | Applicants may be considered before discharge 12 to 24 months after reorganization plan approved |
| Prudential | Applicant approval based on per case basis before and after discharge |
| SBLI | Applicants with good financials may be considered 6 months after bankruptcy filing |
| Securian Financial | Applicants considered with repayment plan, emloyment, and good credit |
| Symetra | Application denied until bankruptcy discharged for 12 months. Will consider case by case within 1 year |
| Transamerica | Applicants with good financials may be considered |
| United of Omaha | Applicants with repayment plan may be considered |
Bankruptcy affects your life insurance rate
You’re probably going to pay more for life insurance if you have a bankruptcy compared to if you didn’t. Life insurance companies see bankruptcies as a high risk situation. A life insurance policy has some large up front fees that the company takes on in the policy’s early years. This makes them cautious with their offers. They may see a bankruptcy applicant as someone who’s careless with money and may not be able to pay for their premiums.
Are life insurance Policies exempt from bankruptcy?
The type of life insurance policy that will be a major factor on whether the policy is exempt or not. Is the policy a term life or permanent life insurance policy?
With term life insurance, the policy does not have any cash value. With a term life insurance bankruptcy, it isn’t looked at as an asset with your estate. The policy’s premiums need to be listed in the bankruptcy’s schedule and the trustee can object to payments on the term policy (if they see them as excessive).
With permanent life insurance, your policy may have cash value. A whole life insurance policy has cash value and is looked at as an asset. Is life insurance cash value protected in bankruptcy? You can protect your whole life cash value policy with something called personal exemptions. There are some instances where the entire cash value can be protected and others where only a percentage is exempt. Always seek advise from an experienced attorney to see how to effectively protect your policy form creditors.
Are life insurance Proceeds exempt from bankruptcy?
What if you’re the beneficiary of a policy and the insured dies before you file for Chapter 7? In this scenario, you’re received a life insurance death benefit and probably want to know how the bankruptcy court will look at it. Bankruptcy courts will want to know the date you were paid the life insurance death benefit when deciding on your exemption status.
- What if I received a death benefit before I filed Chapter 7? If you receive the death benefit before you filed for bankruptcy, the life insurance benefit will be looked at as a cash asset. Just because the money came from a life insurance policy will not matter.
- What if the insured died within 180 days after I filed Chapter 7? What’s important is the date that the insured died. The date that you receive the death benefit is not important. If the insured died 1 month after you filed Chapter 7, the death benefit you’re going to receive is property of your estate. The reason is because the death came within 180 days of the bankruptcy filing. You will have to notify the bankruptcy court and take proper exemptions in order to protect your funds.
- What if someone dies 6 months after you file your Chapter 7? If someone dies 6 months after you filed a Chapter 7 case and left you life insurance money – the life insurance benefit you received is not property of the estate. The reason is you were not entitled to acquire or did not acquire the life insurance money within 180 days after filing for your bankruptcy.
Does Bankruptcy Affect Life Insurance
The bottom line is yes. Life insurance after bankruptcy can affect your premiums and your ability to get coverage immediately. We hope this article helped clarify and answer your questions.
If you have any further questions, please reach out to us and we’d be happy to assist you. Buying life insurance and filing for bankruptcy are both serious in nature, so make sure to take action accordingly.
Does Bankruptcy Affect Life Insurance? At LIB, we have years of experience helping applicants who filed for bankruptcy and need coverage. We understand that shopping for life insurance can often be frustrating and confusing. When you have experienced a bankruptcy, it can compound this frustration. You don’t need to wait any longer to find the life insurance coverage your family needs – we’re here and ready to help you.
