Q

Q

I declared bankruptcy. Can I buy life insurance?

A

A

You can buy life insurance after a bankruptcy, but you may need to wait for up to two years after it’s discharged to be eligible for most policies.

Amanda Shih author photo

Amanda Shih

Published September 15, 2020

KEY TAKEAWAYS

  • If you filed for Chapter 11 or Chapter 13 bankruptcy, you may be able to get some life insurance coverage before your bankruptcy is discharged

  • Most 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 and good credit

  • An existing life insurance policy is safe from creditors during bankruptcy

Your eligibility to buy life insurance depends on a number of factors, such as your health and medical history, any dangerous hobbies or occupations you may have, and the type of coverage you’re requesting. Your attributes in each area will help the life insurance company calculate how risky you are to insure, and therefore whether it can offer you life insurance and at what cost.

Life insurers see past or current bankruptcies as a risk factor because they suggest that you may be unable to consistently pay your policy premiums. The good news is you can still buy life insurance. The bad news is that you might not be able to buy life insurance right now. If your bankruptcy hasn’t been discharged — meaning you’ve been released from the obligation to pay your debt — or if you’ve filed for Chapter 7 bankruptcy, you might have more difficulty finding a policy. If you had your bankruptcy discharged more than two years ago or filed for Chapter 13 bankruptcy, you’ll have more options.

An insurance agent or broker can help you find the best company for your personal scenario, but insurers generally prefer applicants who are at least 12 months past the discharge of their bankruptcy and who can demonstrate financial stability through proof of steady income, repayment plans, and improved credit.

IN THIS ARTICLE

Buying life insurance after declaring bankruptcy

After your bankruptcy has been discharged, your eligibility for life insurance depends on the life insurance company. Every life insurer requires different lengths of time to have passed after discharge, so let your life insurance agent know that you have a recent bankruptcy on your record so that they can match you with the best insurer for your situation.

However, 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. For example, some life insurance companies are more lenient toward Chapter 13 bankruptcies than Chapter 7, but others treat every type of bankruptcy roughly the same.

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 — before you’ll be eligible for a life insurance policy.

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Life insurance eligibility by type of bankruptcy

Some insurers are more flexible about certain types of bankruptcy than others.The tables below reflect guidelines for individuals who have one bankruptcy on file. If you have multiple bankruptcies, providers may request additional financial documents and extend the period before which you are eligible for a policy. If you’re unsure about whether a life insurance company will cover you because of your bankruptcy status, a licensed insurance representative can help you find a policy that fits your needs.

Chapter 7 bankruptcy

Chapter 7 bankruptcy requires you to liquidate your assets when you can no longer afford to pay your debts. If you apply for life insurance in the middle of a Chapter 7 bankruptcy, insurers will generally decline your application. To qualify for a policy, your bankruptcy must have been discharged at least one or two years ago, depending on the insurance company’s guidelines.

Occasionally insurers may be more lenient and offer coverage if your bankruptcy hasn’t been discharged yet. In such cases, you’ll have to show stable financials, including proof of steady employment and income, as well as information about your debts and credit report. Depending on the insurer, you may be considered for full life insurance coverage, or you may be offered only limited coverage.

How life insurers handle Chapter 7 bankruptcy

CompanyApplication Outcome
AIGDeny until bankruptcy has been discharged for 24 months
American NationalDeny until after discharge if you have strong financials
BrighthouseN/A
Global Atlantic FinancialSmall amounts of coverage, then case-by-case after discharge
John HancockCase-by-case approval after discharge
Legal & General AmericaDeny until after discharge if you have strong financials
Lincoln NationalCase-by-case approval after discharge
North AmericanCase-by-case approval after discharge
Pacific LifeDeny until bankruptcy has been discharged for 12 months
Protective LifeDeny until bankruptcy has been discharged for 12 months (for salaried workers) or 24 months (for self-employed workers)
PrudentialCase-by-case approval both prior to discharge and after
SBLIDeny until discharged, sometimes for at least 24 months after
Securian FinancialDeny until bankruptcy has been discharged for 12 months
SymetraDeny until discharged, and case-by-case approval for up to 24 months after
TransamericaDeny until bankruptcy has been discharged
United of OmahaDeny until bankruptcy has been discharged

Based on insurer guidelines provided to Policygenius in 2020. N/A = Policies not offered at this time.

Chapter 13 bankruptcy

Chapter 13 bankruptcy involves creating a plan to repay your debts over three to five years. Since Chapter 13 doesn’t require liquidating your assets and suggests you have the means to repay your debts, you may be able to successfully apply for life insurance before the bankruptcy has been discharged. While this depends on each life insurer’s rules, you’ll generally need to show stable financials as you would under Chapter 7.

As with Chapter 7, some insurers only offer limited coverage if your Chapter 13 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.

How life insurers handle Chapter 13 bankruptcy

CompanyApplication Outcome
AIGDeny until bankruptcy has been discharged for 24 months
American NationalConsider after six months of filing for bankruptcy
BrighthouseN/A
Global Atlantic FinancialSmall amounts of coverage, then case-by-case after discharge
John HancockCase-by-case approval after discharge
Legal & General AmericaConsider if you have strong financials and a repayment plan
Lincoln NationalConsider if you have strong financials, ability to pay, and demonstrated need for insurance
North AmericanConsider if you have strong financials
Pacific LifeConsider if you have a repayment plan
Protective LifeConsider prior to discharge 12 (for salaried workers) to 24 months (for self-employed workers) after reorganization plan approved
PrudentialCase-by-case approval both prior to discharge and after
SBLIConsider after six months of filing for bankruptcy if you have strong financials
Securian FinancialConsider if you're employed, and have good credit and repayment plan
SymetraDeny until discharged, and case-by-case approval for up to 24 months after
TransamericaConsider if you have strong financials up to a certain amount of debt
United of OmahaConsider if you have a repayment plan

Based on insurer guidelines provided to Policygenius in 2020. N/A = Policies not offered at this time.

Chapter 11 bankruptcy

Chapter 11 bankruptcy is for businesses that need to reorganize their assets in order to pay off creditors. Generally, insurers treat Chapter 11 the same way they treat Chapter 13: with more leniency than Chapter 7, as long as you can show stable financials. Your bankruptcy also won’t necessarily need to be discharged before applying.

How life insurers handle Chapter 11 bankruptcy

CompanyApplication Outcome
AIGDeny until bankruptcy has been discharged for 24 months
American NationalDeny until after discharge if you have strong financials
BrighthouseN/A
Global Atlantic FinancialCase-by-case approval after discharge
John HancockCase-by-case approval after discharge
Legal & General AmericaN/A
Lincoln NationalCase-by-case approval after discharge
North AmericanConsider if you have strong financials
Pacific LifeDeny business insurance until bankruptcy has been discharged for 12 months, consider personal insurance if you have strong financials
Protective LifeDeny until bankruptcy has been discharged for 12 months
PrudentialCase-by-case approval both prior to discharge and after
SBLIDeny until bankruptcy has been discharged
Securian FinancialDeny until bankruptcy has been discharged for 12 months
SymetraDeny until discharged, and case-by-case approval for up to 24 months after
TransamericaConsider if you have strong financials, including repayment plan
United of OmahaDeny until bankruptcy has been discharged

Based on insurer guidelines provided to Policygenius in 2020. N/A = Policies not offered at this time.

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How does bankruptcy affect my life insurance premiums?

Having a bankruptcy on your record could mean paying higher life insurance premiums than someone who otherwise has the same health profile but a stronger financial background. To make sure you’re getting the most favorable rates in the first two years after discharging 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.

If you’re healthy, don’t smoke, and have no dangerous hobbies, you’ll be assessed a life insurance classification of Preferred, which is one step below Preferred Plus, the most favorable classification. That means you’ll pay lower premiums than someone in a lower classification, but slightly higher premiums than someone in Preferred Plus. In general, the further out you are from your bankruptcy discharge, the better your classification will be.

How bankruptcy affects an active life insurance policy

Bankruptcy can mean paring back your finances in order to afford paying back your creditors. If you already have life insurance, it may be tempting to let your policy lapse. But if you do that, by the time your bankruptcy has been discharged and your insurer lets you purchase a policy again, you may find that your premiums have increased.

That’s because life insurance is cheaper to buy when you’re young and healthy. And as long as you keep paying the premiums, your insurer can’t take away your policy while you’re in bankruptcy. If you lock in your rates in your 20s, you’ll pay the same amount as a spry 25-year-old when you’re nearing retirement age. If your policy lapses and you have to apply again, you’ll be assessed at the age you are, which means higher premiums, especially if you developed any medical conditions.

Can my insurance proceeds be used to pay off creditors?

When you file for bankruptcy, you may have to liquidate certain assets to pay off debts. Some assets, however, are exempt; you will not be forced to liquidate them to satisfy a bankruptcy’s terms. Term life insurance policies are not assets and are safe from creditors. If you have whole life insurance, some or all of your policy’s cash value could be seized to repay your debts.

Your policy’s death benefit — the amount paid to your beneficiaries when you die — resembles an asset. However, the death benefit is exempt from liquidation. If you die while under bankruptcy with an in force life insurance policy, your beneficiaries will not be required to use any part of the death benefit to satisfy your debts. The only scenario in which your insurance proceeds could go to your creditors is if your funds pay out to your estate instead of directly to 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 into it if you’re able. If you’re applying for a new policy, it may be more difficult to find coverage, but it isn’t impossible, even before your bankruptcy has been discharged. A licensed insurance agent or broker can help you find the right provider for your specific financial situation.

Life insurance and bankruptcy FAQ

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 have and the better premiums you’ll receive. Depending on the type of bankruptcy for which you filed, a few insurers may offer you limited coverage before your debts are discharged. Some providers will consider your application as soon as you’re free of debt, but you’ll have the best luck two years or more after the discharge.

How does bankruptcy affect my current life insurance policy?

A bankruptcy should not affect an active policy as long as you continue to pay your premiums on time.

Can creditors go after life insurance proceeds?

Your term life insurance proceeds are protected from creditors unless you die and they pay out to your estate instead of a beneficiary. Insurance proceeds you receive while you’re alive, either through a policy’s cash value or as a beneficiary of someone else’s insurance policy, could be seized by a creditor.

About the author

Insurance Expert

Amanda Shih

Insurance Expert

Amanda Shih is an insurance editor at Policygenius in New York City. Previously, she worked in nonfiction book publishing and freelance content marketing. Amanda has a B.A. in literature and communication from New York University.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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