Your eligibility for life insurance depends on a number of factors, including your financial history. Life insurers see past or current bankruptcies as a risk because they suggest that you may be unable to pay your policy premiums.
A personal bankruptcy won’t keep you from getting life insurance permanently, but your rates may be slightly higher. You’ll also have to wait until it’s been discharged — i.e., a court has released you from the obligation to repay it — to apply for most policies. Your life insurance options and the financial documents you need to apply vary depending on what type of bankruptcy you filed for and when you filed.
If you have an existing life insurance policy and die while under bankruptcy, your death benefit cannot be taken from your beneficiaries. Creditors can only take the proceeds if they pay to your estate.
Your rates can be impacted by a recent bankruptcy, but the effect of an older, discharged bankruptcy can be low.
If you filed for Chapter 11 or Chapter 13 bankruptcy, you can get some life insurance coverage before your bankruptcy is discharged.
Many insurers require Chapter 7 bankruptcies to be discharged for one to two years before offering you life insurance.
You will need to show proof of financial stability, including regular income, a repayment plan, and improved credit history.
Buying life insurance after declaring bankruptcy
Depending on the type of bankruptcy for which you filed, you may be eligible for some amount of life insurance coverage while the bankruptcy is still in effect. Some life insurance companies are more lenient toward Chapter 13 bankruptcies than Chapter 7, but others treat every type of bankruptcy the same way.
If you have multiple bankruptcies on your record, you may have to wait up to five years after your most recent bankruptcy was discharged before you’ll be eligible for life insurance.
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How bankruptcy affects life insurance rates
Having a bankruptcy on your record could mean paying higher life insurance premiums because your provider considers you riskier to insure. To increase your chances of getting cheaper rates in the first two years after your bankruptcy, you need to show that you’ve established long-term income and stable assets (like a house or car) that justify the life insurance coverage you’re purchasing.
In general, the further out you are from your bankruptcy discharge, the less likely it is to have an impact on your rates.
Life insurance eligibility by type of bankruptcy
Every insurer requires different lengths of time to have passed after a bankruptcy discharge. The table below reflects guidelines for individuals who have one bankruptcy on file.
Let your life insurance agent know about your financial history so that they can match you with the right provider.
|Company||Chapter 7||Chapter 11||Chapter 13|
|AIG||Deny until discharged for at least two years||Deny until discharged for at least two years||Deny until discharged for at least two years|
|Banner Life||Postpone until discharged||N/A||Case-by-case consideration|
|Brighthouse||Deny until discharged for at least two years||Deny until discharged for at least two years||Deny until discharged for at least two years|
|Lincoln Financial||Postpone until discharged||Postpone until discharged||Case-by-case based on bankruptcy details and financial status|
|Mutual of Omaha||Postpone until discharged||Postpone until discharged||Case-by-case if on a repayment plan|
|Pacific Life||Deny until discharged for more than one year||Eligible for personal coverage, deny business coverage until discharged for more than one year||Case-by-case if on a repayment plan|
|Protective||Postpone until discharged for one year (two years if self-employed)||Postpone until discharged for one year||Postpone until one year from approved reorganization plan (two years if self-employed)|
|Prudential||Postpone until fully discharged||Case-by-case consideration||Case-by-case consideration|
|SBLI||Deny until discharged for at least two years||N/A||Case-by-case if more than six months from date of original petition|
|Symetra||Postpone until fully discharged||Postpone until fully discharged||Postpone until fully discharged and more than six months from date of original petition|
|Transamerica||Postpone until discharged||Postpone until restructure plan is approved and based on company finances||Case-by-case consideration|
Methodology: Based on insurer guidelines provided to Policygenius in 2022.
N/A = Policies not offered at this time.
Chapter 7 bankruptcy
Chapter 7 bankruptcy requires you to liquidate your assets when you can no longer afford to pay your debts. Providers will decline your application in the middle of a Chapter 7 bankruptcy. To qualify for term or whole life insurance, your bankruptcy must have been discharged at least one or two years ago.
When you apply, you’ll have to show stable financials, including proof of steady employment and income, as well as information about your debt and credit report.
Chapter 11 bankruptcy
Chapter 11 bankruptcy is for businesses that need to reorganize their assets in order to pay off creditors. Since Chapter 11 suggests you can repay your debts, some providers allow you to apply for individual life insurance before the bankruptcy is discharged. You’ll generally need to show your provider stable financials and the approved repayment plan.
Chapter 13 bankruptcy
Chapter 13 bankruptcy involves creating a plan to repay your debts over three to five years. Generally, insurers treat Chapter 13 the same way they treat Chapter 11: with more leniency than Chapter 7, as long as you show stable financials. Your bankruptcy won’t necessarily need to be discharged before applying.
Some insurers only offer limited coverage if your bankruptcy hasn’t been discharged. Others may offer you full coverage. The insurer decides case-by-case, and will take your other financial and health information into consideration.
Can creditors go after a life insurance policy?
When you file for bankruptcy, you may have to liquidate certain assets to pay off debts. Some assets, however, are exempt: Creditors cannot take the life insurance proceeds paid to your beneficiaries. Term life insurance policies are not assets and are also safe from creditors.
The only times when your insurance money could go to your creditors are if you have life insurance with a cash value (in which case the cash value can be seized) or if your policy pays out to your estate instead of a beneficiary.
Recovering from a bankruptcy can be complicated, but managing life insurance after you file for bankruptcy doesn’t have to be. If you have an existing policy, continue to pay the premiums if you’re able. If you’re applying for a new policy, a Policygenius agent can help you find the right provider for your financial situation.
Frequently asked questions
Can I get life insurance after filing for bankruptcy?
You can get life insurance after a bankruptcy. The further you are from your bankruptcy and the fewer bankruptcies on your record, the more life insurance options you’ll have and the better premiums you’ll receive.
How does bankruptcy affect a life insurance policy?
A bankruptcy should not affect an existing policy as long as you continue to pay your premiums on time.
Is life insurance exempt from creditors?
Life insurance benefits are safe from creditors unless they’re paid to your estate instead of a beneficiary. Insurance money you get through a policy’s cash value or from someone else’s policy can be seized by a creditor.