I’ve declared bankruptcy – can I buy life insurance?

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I’ve declared bankruptcy – can I buy life insurance?

Can you buy life insurance after a bankruptcy? Good news: you can still buy life insurance if you have a bankruptcy on your record. Bad news: you might not be able to buy life insurance right now.

In general, you may have a harder time finding a life insurance policy if you declared bankruptcy in the last year or two years. The exact timing depends on the life insurance company, so make sure you let your life insurance agent know that you have a recent bankruptcy on your record so that they can help match you with the best insurer for your situation.

If you have multiple bankruptcies on your record, you may have to wait even longer – in some cases, up to five years after your most recent bankruptcy was discharged.

Having a bankruptcy on your record will not increase your life insurance premiums. Unlike other underwriting concerns, such as your weight or health problems, there isn’t a price matrix – instead, it’s a binary yes or no as to whether you will be allowed to purchase life insurance.

Depending on the type of bankruptcy you filed for, you may have an easier time getting life insurance. If you’re in the middle of a Chapter 7 bankruptcy, the rule of thumb is that it must have been discharged at least a year ago (some carriers require you wait two years). If you’ve filed for Chapter 13 bankruptcy, on the other hand, you may be allowed to get life insurance before it’s been discharged. There’s no set rule for this, however; life insurance companies look at ongoing Chapter 13 bankruptcies on a case by case basis.

What’s the big difference? Chapter 13 bankruptcies typically involve some sort of debt repayment program or allow you to hold onto certain assets. Chapter 7, on the other hand, discharges some of your debts and allows you to "start fresh," so to speak.

Why do bankruptcies affect your life insurance application? There are two big reasons a recent bankruptcy could end up increasing your risk in the eyes of an insurer:

  1. They question your financial stability.

  2. If you went bankrupt due to medical debt, they may ask more questions about your health.

Life insurers don’t break even on a life insurance policy right away – they have to pay for the medical exam, their staff, the underwriter, and the agents’ commissions. Insurers need a policyholder to pay their premiums for a few years before they recoup those costs. If an insurer believes you’re financially unstable, they’re not going to want to take the risk that they won’t be able to break even.

The other reason a bankruptcy increases your risk is because past studies have linked bankruptcy to medical debt. The life insurance company may take a closer look at your medical record, particularly any illnesses that occurred around the time of your bankruptcy. Depending on the specifics of your case, it may turn out that your past health issue has more of an affect on your rate than your bankruptcy.

If you have a bankruptcy in your past, talk to an independent life insurance agent today. Independent agents usually work with multiple life insurance companies (PolicyGenius agents work with almost a dozen) and can help match you to the life insurance company with the most liberal policy towards past bankruptcies. Agents can also help match you to a policy based on your medical history and other risk factors, such as your driving record or your hobbies.