When you apply for life insurance, providers will review more than just your health to determine how eligible you are for coverage. Part of the review by life insurance companies will be your financial history. If you’ve filed bankruptcy in the past, agents will discover it but it doesn’t necessarily mean you’ll be denied coverage.
If you’re curious how bankruptcy will affect your life insurance application, read on to determine which details best match your financial situation.
Life Insurance And Bankruptcy
Life insurance – current or coverage you’re trying to obtain – can be affected by bankruptcy. The rules differ depending on the type of bankruptcy you file. Most bankruptcy cases in the U.S. fall under Chapter 7, Chapter 11, or Chapter 13.
- Chapter 7 Bankruptcy: Typically the fastest way to file and close a bankruptcy case, Chapter 7 is also known as the straight bankruptcy. It’s a recognition that you owe the debt you’ve accumulated and liquidation of certain assets to fulfill as much of that debt as possible.
- Chapter 11 Bankruptcy: Filing this type of bankruptcy is a reorganization that allows for debts to be repaid while assets and cash are strictly monitored. Businesses most commonly file Chapter 11, but individuals who have large amounts of debt can also file this way.
- Chapter 13 Bankruptcy: The debtor has an income, though not enough to pay accumulated debts. Similar to Chapter 11, this type of filing allows the debtor to make payments, which are strictly enforced, based on the income documented.
If you have an open bankruptcy case, meaning there is no settlement, discharge, or clearing, it’s likely you’ll have to wait until the order clears before applying for life insurance.
How Long Do I Wait To Apply For Life Insurance After Bankruptcy?
Bankruptcy can affect your financial dealings for years after the filing is closed. Fortunately, obtaining life insurance is generally not one of the prolonged waiting areas. After filing Chapter 7 bankruptcy, you’ll need to wait one year before applying for life insurance. Providers have a number of reasons for this waiting period.
- Stress or altered mental health due to the onset and stress of the bankruptcy process
- Anxiety from bankruptcy or the aftermath of filing
- Depression that results from the reason for filing or the process
- Suicide as a result of financial hardships
Your ability to pay for life insurance coverage is really a low priority to most companies, as coverage can simply be revoked if you default on your premiums. The financial concern for life insurance applicants after filing bankruptcy is the inability to get adequate coverage because of no or a low income.
In order to obtain the best plan for you and your family, reveal you bankruptcy filing to your life insurance agent when applying, that way you can review options based on the outcome of your financial situation. Be prepared with the dates of your filing and discharge.
If you have life insurance and are going through a bankruptcy, here’s what you need to know:
- Term Life: If you have a term life insurance policy when you file for bankruptcy, you can keep the policy as long as you stay current on your payments. The only value of this policy is in its maturity, which means you have died.
- Whole Life: If you own a whole or universal life insurance product when you file bankruptcy, call a legal professional licensed in your state. If the policy has a cash value, it can be assessed partially or entirely. It’s important to know the regulations and life insurance exemptions in your state.
Filing bankruptcy does not mean you’re ineligible for life insurance. Working with the right life insurance agent and being transparent about your financial history will help you find the best policy and coverage to ensure your family is prepared for the future.