What Happens to Your Life Insurance If You File for Bankruptcy?

Worried what might happen to your life insurance after you file for bankruptcy? Here is a complete guide explaining all about it.
 filing for bankruptcy

All life insurance policies involve three parties: the policyholder, the insured, and the beneficiary. The insurance plan is managed by the policyholder. Both adjustments and cancellations are within their purview. The demise of the insured will result in the distribution of benefits to the beneficiary. Whoever is designated as the beneficiary will be the one to get the insurance money.

Life insurance can be relevant in bankruptcy proceedings in two main ways. To begin, if you have a cash-value life insurance policy. The second scenario is if you are the beneficiary of a life insurance plan and the insured person passes away before or shortly after you declare bankruptcy. On that note, let’s look at what happens to your life insurance if you file for bankruptcy.

How Does It Work?

A life insurance company will look at your credit history and other personal details to determine if they will provide you with a policy. A life insurance company may consider you high risk if you have declared bankruptcy or are currently filing for bankruptcy.

The inability to obtain life insurance agency in houston following a bankruptcy discharge will not be permanent, although premiums may be higher than usual. To qualify for most plans, you’ll also be required to wait until your debt has been discharged, meaning you are no longer legally obligated to make payments.

Based on the chapter of bankruptcy you declared and the date you filed, you may have different alternatives for life insurance and may require different financial documentation to apply. If you have a life insurance plan and pass away while your bankruptcy is still pending, your beneficiaries will still receive the full death benefit. They must make a payment to your estate before creditors can claim any of the money.

 A person checking his empty wallet

Can You Buy Life Insurance After Declaring Bankruptcy?

While your bankruptcy is effective, you may be able to claim life insurance benefits based on the kind of bankruptcy you filed for. While some life insurance agencies may be more understanding of Chapter 13 than Chapter 7 bankruptcy, others may be less forgiving.

If you have filed for bankruptcy more than once, you will just have to wait until at least five years have passed since your most recent dismissal was finalized before you can apply for life insurance.

How Does Bankruptcy Affect Life Insurance Premiums?

If you have filed for bankruptcy in the past, your premiums for life insurance may be higher than normal since insurers may view you as too much of a risk to insure. Within the first two years following your bankruptcy, you may be able to acquire better rates on life insurance agency in houston by demonstrating that you have a steady source of income and substantial assets (such as a home or car) that can support the policy you’re applying for.

The longer it has been since your bankruptcy was dismissed, the less probable it is that it will influence your rates.

Life Insurance By Type Of Bankruptcy

No universally accepted minimum amount of time must have gone following a bankruptcy discharge before insurance will cover you again. If you want your life insurance company to find you the best possible policy, they need to learn about your financial circumstances.

Bankruptcy Chapter 7

When you are in a position where you cannot pay your bills, you may file for Chapter 7 bankruptcy and be required to liquidate your valuables. Companies will not accept your application if you are currently in the midst of a Chapter seven bankruptcy.

You can only get approved for whole life or term insurance once your bankruptcy has been resolved for a minimum of one or two years. To qualify, you’ll need to disclose your debts and credit history in addition to showing proof of regular income and job.

Bankruptcy Chapter 11

Companies that require time to restructure their assets and determine the best way to pay back creditors may file for bankruptcy under Chapter 11. Some companies will consider your application for personal life insurance even if you have filed for Chapter 11 bankruptcy because it shows you can repay your debts.

In most cases, you’ll need to demonstrate to your lender that you have a secure financial foundation and a strategy to make monthly payments.

Bankruptcy Chapter 13

For Chapter 13 bankruptcies, a repayment plan is developed that might last from 3 to 5 years. Insurers tend to see Chapter 13 in the same manner they do Chapter 11: more favorably than Chapter 7, provided the policyholder can demonstrate financial stability. There is no requirement that your bankruptcies be dismissed before you apply.

 life insurance agent

If you’re looking for a reliable life insurance company in Houston, Franklin Life & Annuity is the best option for you. Whether you want family life insurance or final expense life insurance in Houston, we offer it all. Contact us for more details.