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I’ve declared bankruptcy. Can I buy life insurance?

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 away.

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 much risk you pose and therefore whether it can offer you life insurance and at what premium rate.

If you’ve declared bankruptcy, it may look risky to an insurer when you apply for life insurance. However, 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.

Read on to learn more about how bankruptcy can affect applying to life insurance:

Buying life insurance after declaring bankruptcy

In general, you may have a harder time finding a life insurance policy if you’ve filed for bankruptcy and it hasn’t been discharged yet.

After your bankruptcy has been discharged, your eligibility for life insurance depends on the life insurance company. Every carrier requires different lengths of time to have passed after discharge, 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.

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However, depending on the type of bankruptcy 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.

Life insurance eligibility by type of bankruptcy

Depending on the type of bankruptcy you filed for, you may have an easier time getting life insurance. If you’re unsure about whether a life insurance company will cover you because of your bankruptcy status, you can talk to licensed representative at Policygenius, who will help you find a policy that fits your need at a price you can afford.

Chapter 7 bankruptcy

Chapter 7 bankruptcy is the liquidation of your assets when you can no longer afford to keep paying your debts. When you apply for life insurance and you’re in the middle of a Chapter 7 bankruptcy, insurers generally will decline your application. The rule of thumb is that your bankruptcy must have been discharged either one or two years ago, depending on the carrier.

Some carriers 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 employment, income, debts, and credit. Depending on the insurer, you may be considered for full life insurance coverage, or you may be offered only limited coverage.

How carriers handle Chapter 7 bankruptcy, as of June 2018

CarrierApplication Outcome
AIGDeny until bankruptcy has been discharged for 24 months
American NationalDeny until bankruptcy has been discharged for 24 months
BrighthouseDeny until bankruptcy has been discharged for 12 months
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 up to 24 months
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, but consider if you're employed, and have good credit and repayment plan
Symetra*Deny unless discharged for 12 months, but consider case by case within 12 months
TransamericaDeny until bankruptcy has been discharged
United of OmahaDeny until bankruptcy has been discharged
* As of 3/2018

Chapter 13 bankruptcy

Chapter 13 bankruptcy is the reorganization of your assets (or those of your business) to avoid having to liquidate them while still paying off your creditors. Since Chapter 13 is not as severe as Chapter 7, 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.

Some carriers only offer limited coverage if your Chapter 13 bankruptcy hasn’t been discharged. Others may offer you full coverage. Regardless of the policy, applicants will be considered individually.

How carriers handle Chapter 13 bankruptcy, as of June 2018

CarrierApplication Outcome
AIGDeny until bankruptcy has been discharged for 24 months
American NationalConsider after six months of filing for bankruptcy
BrighthouseConsider if you have strong financials
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 other information
North AmericanConsider if you have strong financials
Pacific LifeConsider if you have a repayment plan
Protective LifeConsider prior to discharge 12 to 24 months 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
Symetra*Deny unless discharged for 12 months, but consider case by case within 12 months
TransamericaConsider if you have strong financials
United of OmahaConsider if you have a repayment plan
* As of 3/2018

Chapter 11 bankruptcy

Chapter 11 bankruptcy is for businesses who need to reorganize their assets in order to pay off creditors. You may need to purchase life insurance on your business partner if his or her death could cause a financial burden for your company, but if your business is undergoing a Chapter 11 bankruptcy, you could hit a snag.

Generally, insurers treat Chapter 11 the same way they treat Chapter 13: more lenient than Chapter 7, as long as you can show stable financials. Your bankruptcy also won’t necessarily need to be discharged before applying.

How carriers handle Chapter 11 bankruptcy, as of June 2018

CarrierApplication Outcome
AIGDeny until bankruptcy has been discharged for 24 months
American NationalDeny until bankruptcy has been discharged for 24 months
BrighthouseConsider if you have strong financials
Global Atlantic FinancialNo information
John HancockCase-by-case approval after discharge
Legal & General AmericaConsider if you have strong financials
Lincoln NationalNo information
North AmericanConsider if you have strong financials
Pacific LifeDeny until bankruptcy has been discharged for 12 months
Protective LifeDeny until bankruptcy has been discharged for 12 months
PrudentialCase-by-case approval both prior to discharge and after
SBLINo information
Securian FinancialDeny until bankruptcy has been discharged for 12 months, but consider if you're employed, and have good credit and repayment plan
Symetra*No information
TransamericaConsider if you have strong financials, including repayment plan
United of OmahaDeny until bankruptcy has been discharged
* As of 3/2018

How does bankruptcy affect my life insurance premium rates?

Having a bankruptcy on your record could mean paying higher life insurance premiums than someone who otherwise has the same risk profile but a stronger financial background.

In the year or two after discharging your bankruptcy, to make sure you’re getting the most favorable rates, you need to show that you’ve established long-term income and stable assets 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 generous 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 rates will be.

Getting life insurance early to save money on premiums

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 while undergoing bankruptcy. 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 rates have increased.

That’s because life insurance is cheaper to buy when you’re young and healthy. When you lock in your rates, you’ll pay the same amount as a spry 25-year-old that you pay when you’re hitting retirement age. But if your policy lapses and you have to apply again, you’ll be assessed at the age you are, which means higher rates, especially if you developed any medical conditions in the intervening years.

I have life insurance. Can my death benefit be used to pay off creditors?

When you file for bankruptcy, you may have to liquidate certain assets to pay off the people you owe money to. Some assets, however, are exempt; you will not be forced to liquidate them to satisfy a bankruptcy’s terms.

Although most life insurance policies are not assets, the death benefit – the amount paid to your beneficiaries when you die – resembles an asset. Fortunately, the death benefit is exempt from liquidation. When you have an in-force life insurance policy, if you die while still under bankruptcy, your beneficiaries will not be required to use any part of the death benefit to satisfy any of your debts.

Disclaimer: 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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