Last Updated: February 22nd, 2021
Bankruptcy is a legal process which allows an individual or business to deal with mounting debt. There are many types of bankruptcy, some of which are designed for individuals while others are for businesses.
Life Insurance and Bankruptcy
While this legal process can often help people in a tough situation, it can also make other aspects of life unpleasant. In addition to securing future credit, individuals will discover that securing life insurance can become difficult.
Fortunately, every life insurance company is able to make their own rules and regulations, so getting approved for life insurance after bankruptcy is not impossible.
If you’re looking for life insurance to protect either your family or your business, you can get it. Coverage doesn’t have to be unattainable.
The Common Types of Bankruptcy
There are many different types of bankruptcy. Some of them will require the complete liquidation of physical assets and property, while others create legally supervised payment plans.
Chapter 7 Bankruptcy
This individual type of bankruptcy is often referred to as a ‘fresh start’ or ‘liquidation’ type of bankruptcy. When someone files for Chapter 7, they typically must sell property and belongings in order to satisfy the remaining debt. Some items, referred to as exempt property, may remain. This is the most common type of bankruptcy.
Chapter 11 Bankruptcy
Most prominently used by business entities, this type of bankruptcy allows a business to remain in operation even after they have become unable to pay its debt. The debtor will remain in control, however, they are called a ‘debtor in possession’ and are monitored by the legal system.
They are required to pay off all debts before being removed from this status. Liquidation can often be involved with Chapter 11 bankruptcy.
Chapter 13 Bankruptcy
This type of bankruptcy, commonly known as ‘wage earner plan’, creates a payment program for someone to pay off his or her debts over time with a legally approved and supervised payment plan. Typically, creditors will not be paid in full as the individual’s debts are typically reduced.
The primary differences between the different insurance companies underwriting guidelines are liquidation versus payment plans.
Why Does Bankruptcy Impact Life Insurance?
For most people, the health of the applicant is the most important part. In some cases, health has nothing to do with the reason they are rejected.
Why does bankruptcy change your life insurance chances? There are several reasons for this.
First of all, the insurance company will be worried about your financial stability. There are a million reasons you could have filed for bankruptcy, but the company is going to see it as an extreme risk.
The only way the insurance company is going to make money is if you hold the plan for several years and pay the premiums. If you don’t have the plan for several years, they are going to lose money. They want to be as confident as possible they will make money on your life insurance plan.
Another reason they are going to be cautious of giving you coverage is because of studies in the past in regard to bankruptcy. A report which was featured in The American Journal of Medicine showed medical bills are the cause of around 60% of bankruptcies.
For health insurance carriers, this is a double whammy. First of all, you have the bankruptcy on your record.
Secondly, there is a reason for the bankruptcy, the medical bills. If you have a lot of medical bills, it might mean you have health problems. The more health bills you have, the more likely you are to have pre-existing conditions.
These two things combined are going to cause you to be a high-risk applicant, which means they are going to scrutinize your health.
The Rules and Regulations of Life Insurance Companies
Life insurance companies will not generally insure someone who has an active bankruptcy. The most common regulation is that your bankruptcy is completely discharged and resolved before you’re eligible for receiving coverage.
If you’ve filed for bankruptcy in the past, this won’t cause your premiums to go up. Yes, you heard me correctly. Having a bankruptcy on your file is a cause to be declined for coverage, but it’s either yes or no. If they give you life insurance, they aren’t going to make you pay more.
Here are some common examples from some of the leading life insurance companies:
- American General will not approve any life insurance requests until two years after a bankruptcy has been discharged. This is a firm rule for all types of bankruptcy.
- Genworth will not approve any applicants with a chapter 7 bankruptcy that has not yet been discharged. However, they may consider covering individuals that are presently on a payment plan under chapter 11 or chapter 13 bankruptcy.
- SBLI requires that the bankruptcy is resolved regardless of the chapter. However, they are more lenient than some companies and review each case individually. If you are on a payment plan and have a proven track record for making payments, you have a chance of being approved.
These are only three of the thousands of companies out there. Some will say yes, while others are going to give you a difficult rejection.
How to Buy Life Insurance after Bankruptcy
Life insurance is an important part of being a responsible adult. It allows for peace of mind knowing that your loved ones will be financially taken care of when you pass. However, bankruptcy can prevent you from receiving this coverage. Fortunately, it’s not impossible.
The best way to buy life insurance after bankruptcy is to work with an individual life insurance agent (like us). We represent and have relationships with over 30 different insurance companies.
After speaking with you and evaluating your situation we can contact various insurance companies to see if they would approve you based on your situation.an independent agent will begin contacting various life insurance companies.
Within a few days of speaking, we can let you know which company would approve you based on the history of bankruptcy and then apply for life insurance. The same is true if you have any health problems, like diabetes.
Even if you’ve tried applying before and been declined because of your bankruptcy, it’s not the end of your life insurance chances. We can help revive those chances and comb through all of our insurance partners to find one who will be a great fit for you.
At Best Life Quote, we will work with you beforehand to present your application in the best possible light. We are going to fight for you as we talk to the insurance carrier.
Trying to find life insurance on your own after filing for any type of bankruptcy may seem difficult. As an individual, you’ll have to jump through many hoops simply to explain your situation. Instead, we can help you navigate the various guidelines of insurance companies and help you get approved for life insurance.
Going through bankruptcy isn’t easy. It causes a lot of problems, but buying life insurance doesn’t have to be one of them. With a little work before and with some help from insurance experts, you can buy a plan you can afford.
You can contact us by calling us at 800-712-8519 or you can compare quotes and request an application for life insurance using our quote form on this page.