Does Bankruptcy Affect Life Insurance Application and Approval?

Does Bankruptcy Affect Life Insurance
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    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

    1. Wait 12 months if you filed for Chapter 7
    2. Inform your agent about your bankruptcy
    3. Provide the dates of when you filed and was discharged
    4. 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:

    CompanyAPPLICATION OUTCOME
    AIGApplication denied until bankruptcy has been discharged for at least 24 months
    American NationalApplication denied until bankruptcy has been discharged for at least 24 months
    BrighthouseApplication denied until bankruptcy has been discharged for at least 12 months
    John HancockBankruptcy must be discharged; Approval is case by case
    BannerDeny until after discharge if you have strong financials
    Lincoln NationalBankruptcy must be discharged; Approval is case by case
    North AmericanBankruptcy must be discharged; Approval is case by case
    Pacific LifeApplication denied until bankruptcy has been discharged for at least 12 months
    Protective LifeApplication denied until bankruptcy has been discharged for at least 24 months
    PrudentialApprovals are case by cases before & after bankruptcy discharges
    SBLIApplication denied until bankruptcy has been discharged, often for at least 24 months
    Securian FinancialDenied until discharged for 12 months, but possible consideration within 1 year with good credit, employed, repayment plan
    SymetraDenied until discharged for 12 months, but possible consideration within 1 year
    TransamericaBankruptcy must be discharged or will be denied
    United of OmahaBankruptcy 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:

    CARRIERAPPLICATION OUTCOME
    AIGApplication denied until bankruptcy has been discharged for at least 24 months
    American NationalApplication denied until bankruptcy has been discharged for at least 24 months
    BrighthouseApplicants with good financials may be considered
    John HancockApplication approval is based on each case after discharge
    Banner LifeApplicants with good financials may be considered
    Lincoln NationalNo information
    North AmericanApplicants with good financials may be considered
    Pacific LifeApplication denied until bankruptcy has been discharged for at least 12 months
    Protective LifeApplication denied until bankruptcy has been discharged for at least 12 months
    PrudentialApplication approval based on per case before & after discharge
    SBLINo details
    Securian FinancialApplication denied until bankruptcy has been discharged for at least 12 months
    SymetraNo details
    TransamericaApplicants with repayment plan and good financials may be considered
    United of OmahaApplication 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:

    CARRIERAPPLICATION OUTCOME
    AIGApplication denied until bankruptcy has been discharged for at least 24 months
    American NationalEvaluate 6 months after filing bankruptcy
    BrighthouseApplicants with good financials may be considered
    John HancockBankruptcy must be discharged; Approval is case by case
    Banner LifeApplicants with good financials and repayment plan may be considered
    Lincoln NationalApplicants with good financials may be considered
    North AmericanApplicants with good financials may be considered
    Pacific LifeApplicants with a repayment plan may be considered
    Protective LifeApplicants may be considered before discharge 12 to 24 months after reorganization plan approved
    PrudentialApplicant approval based on per case basis before and after discharge
    SBLIApplicants with good financials may be considered 6 months after bankruptcy filing
    Securian FinancialApplicants considered with repayment plan, emloyment, and good credit
    SymetraApplication denied until bankruptcy discharged for 12 months. Will consider case by case within 1 year
    TransamericaApplicants with good financials may be considered
    United of OmahaApplicants 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 Policies exempt from bankruptcy

    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.

    Michael Quinn

    Michael Quinn

    Michael is a licensed life insurance agent, expert & owner of Life Insurance Blog. LIB has helped thousands of shoppers understand life insurance and secure affordable coverage.
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    Michael Quinn
    Founder – Life Insurance Blog

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