Does bankruptcy affect life insurance rates?

Your life insurance rates may go up due to bankruptcy. You’ll need to wait for up to two years after it’s discharged to be eligible for most policies.

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Amanda Shih

Amanda Shih

Editor & Licensed Life Insurance Expert

Amanda Shih is a licensed life, disability, and health insurance expert and a former editor at Policygenius, where she covered life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.

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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.

Key takeaways

  • 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.

→ Learn more about how providers set your policy 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.

Author

Editor & Licensed Life Insurance Expert

Amanda Shih

Editor & Licensed Life Insurance Expert

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Amanda Shih is a licensed life, disability, and health insurance expert and a former editor at Policygenius, where she covered life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.

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