Your eligibility for life insurance depends on a number of factors, including your financial history. Life insurance companies see past or current bankruptcies as a risk because they suggest that you may struggle 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.
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 bankruptcies, 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.
How does bankruptcy affect life insurance rates?
Having a bankruptcy on your record could mean paying higher life insurance premiums because your insurance 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 insurers 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 |
|---|---|---|---|
Decline until discharged for at least two years | Decline until discharged for at least two years | Decline until discharged for at least two years | |
Postpone until discharged | Case-by-case consideration | Case-by-case consideration | |
Decline until discharged for at least two years | Decline until discharged for at least two years | Decline until discharged for at least two years | |
Postpone until discharged | Postpone until discharged | Case-by-case based on bankruptcy details and financial status | |
Postpone until discharged | Postpone until discharged | Case-by-case consideration if on a repayment plan | |
Postpone until discharged for more than one year | Postpone until discharged for more than one year | Case-by-case consideration if on a repayment plan | |
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) | |
Postpone until fully discharged | Case-by-case consideration | Case-by-case consideration | |
Decline until discharged for two years | Decline until discharged for two years | Decline until discharged for two years | |
Postpone until fully discharged, dependent on certain application criteria | Postpone until fully discharged, dependent on certain application criteria | Postpone until fully discharged and more than six months from date of original petition | |
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 as of January 2024.
Chapter 7 bankruptcy
Chapter 7 bankruptcy requires you to liquidate your assets when you can no longer afford to pay your debts. Insurers will generally decline your application in the middle of a Chapter 7 bankruptcy.
To qualify for term life 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.
Typically, insurers treat Chapter 13 the same way they treat Chapter 11. There’s more leniency than with Chapter 7 bankruptcies, 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 on a case-by-case basis, 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 can’t 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 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 expert can help you find the right coverage for your financial situation.
