Life Insurance and Bankruptcy
Filing for bankruptcy is sometimes the best and fastest way for a debtor to recover from a financial hardship. Most people don’t know that a bankruptcy on your credit report could make you uninsurable in certain cases when it comes to life insurance. It really depends on the type of bankruptcy and whether or not it has been discharged. If you have a bankruptcy on your credit report, you need to know your options when applying for life insurance. Our post will explain the important factors you need to know about life insurance and bankruptcy.
Bankruptcy Statistics
- In 2014 there were 898,970 non-business bankruptcy filings in the U.S. (Credit.com)
- Almost half of all bankruptcies are related to outstanding medical conditions. (Debt.org)
- Most who file have an annual income of less than $30,000 but almost 10% of filers have an annual income of more than $60,000. (Debt.org)
- The median age of bankruptcy seekers is 45. (Debt.org)
- Over 64% of personal bankruptcy filings were initiated by married individuals, 17% by single individuals, 15% by divorced individuals and 3% by widowed individuals. (Debt.org)
Two Most Common Types of Personal Bankruptcy Filings
Chapter 7 – This is a liquidation bankruptcy designed to alleviate all of your unsecured debts such as credit card bills and medical bills. With the exception of having a bankruptcy on your credit report for 10 years, you can start over with a clean slate and no debts once your bankruptcy is discharged.
Chapter 13 – This type of bankruptcy allows you to reorganize and restructure your debt through a court approved plan. Through a trustee, you will be required to make regular payments for up to 5 years.
Can You Get Life Insurance After Filing for Bankruptcy?
The reason why we explained the different types of personal bankruptcy filings is because they are treated differently in the eyes of insurance companies.
For those who file chapter 7 bankruptcy, the rules can be strict. If your bankruptcy has not yet been discharged, you will most likely be uninsurable. Once your chapter 7 bankruptcy has been discharged, some companies will allow you to apply shortly thereafter while others will require you to wait a certain period of time after discharge. You may need to show proof of discharge in some cases. The key is to work with an independent agency, like ours, that can shop your case to the company that will most favorable underwrite your situation.
For those who file chapter 13 bankruptcy, the rules are a bit different. Since this is a reorganization of your personal debt, the life insurance company is going to want to see a payment agreement in place with your creditors and a history of timely payments. Each company has its own guidelines for how it looks at a chapter 13 bankruptcy during underwriting. Again, the key is to use an independent agency, like ours, that can shop your case and find you the best rate.
In many cases, underwriting a life insurance applicant with a bankruptcy comes down to individual consideration. We will write a cover letter on your behalf to highlight the positive aspects of your case such as a timely payment history or secure employment history. We will make sure that you are matched with the right company that will offer you the best rate.
Why is My Bankruptcy Important to a Life Insurance Company?
If you have a fresh bankruptcy on your record, the life insurance looks at you as a high risk for policy lapse. If money is tight, chances are you will make other bills a priority over your life insurance premium.
There are other potential risks associated with filing for bankruptcy. For instance, depression or other emotional and health issues may be a result of a bankruptcy filing. Most insurance companies want to make sure that your bankruptcy has been discharged and you are on the right track to getting your finances under control.
Remember, it costs the life insurance company money to fully underwrite a policy. The life insurance company must pay for all of the acquisition costs of your policy such as the paramedical exam, background checks as well as all other administrative costs. If you let your policy lapse early on, the life insurance company could lose a substantial amount of money.
How is Your Existing Life Insurance Coverage Affected by Filing Bankruptcy?
If you have existing life insurance coverage and you are thinking about filing for bankruptcy, you might be wondering how your policy will be affected. It will usually come down to the type of policy you have (whether it is term or permanent coverage) and the state you live in. We do not give legal advice, so the best thing to do would be to reach out to a bankruptcy attorney for professional guidance.
Let us Find You the Best Fit for Your Situation
If you need life insurance but you have a bankruptcy on your credit report, we can help. We will look at all of our valued partners to find you the best match for your situation. We shop over 40 of the top life insurance companies for our clients. We offer free consultations and no sales pressure environment. Give us a call today at 888-687-9444 or email us at info@archstoneagency.com.
About Us
Archstone Insurance Services, LLC is an independent agency that shops over 40 of the top life insurance carriers to provide huge savings on life insurance coverage for our clients. We are happy to answer any questions you might have about any of the insurance products we offer, your planning needs or your existing coverage. Feel free to call us directly at (888) 687-9444 or email us at info@archstoneagency.com.
