To put it mildly, bankruptcy is a stressful time. Among the many worries and questions you might have, you might wonder what happens to your life insurance policy, if you have one, after you’ve declared bankruptcy.
The answer depends on what type of life insurance policy you have, and what type of bankruptcy you’ve declared. Keep reading to learn more about what happens to life insurance during bankruptcy.
Bankruptcy is a legal process that allows individuals or businesses to declare that they cannot repay their debts. It’s a formal declaration that you are unable to meet your financial obligations and that your assets are insufficient to cover your debts.
Typically, you file for bankruptcy in court. Once the court accepts the bankruptcy petition, an automatic stay is put in place that prevents creditors from pursuing collection actions against you. This means that once you begin the bankruptcy process, you won’t need to worry about additional legal notices arriving at your door. Bankruptcy auditors will communicate with your creditors and let them know there is a plan in place for repayment.
The goal of bankruptcy is to provide a fresh start for individuals or businesses burdened with debt they cannot pay. There are several types of bankruptcy, but the most common are Chapter 7 and Chapter 13.
Bankruptcy has serious consequences, such as damaging your credit score, and you may lose some of your assets. However, for some people, bankruptcy may be the best option for getting out of debt and starting fresh.
Know that if you are forced to file bankruptcy, there will be severe limitations on your future ability to use credit and borrow money. Even if you are in debt, it’s a good idea to consult with a bankruptcy attorney before deciding to file.
In short, yes… depending on what type of policy you have.
If you have a term life insurance policy, it typically does not accumulate cash value, meaning it cannot be used to repay your creditors. The upshot is your policy will remain in place, provided you can still make your premium payments. (See below.)
If you have a whole life insurance policy or another type of permanent life insurance policy, it likely does accumulate cash value. This cash value can be used to repay your creditors, though there is a federal exemption of $14,875 — meaning any value over that amount is subject to seizure. (Some states provide additional exemptions. Your bankruptcy lawyer should be aware of these.)
Depending on your financial situation, including whether you can pay future premiums, your policy would remain in place.
If your policy is left in place under the terms of your bankruptcy agreement, and you can still afford to pay the premiums on that policy, your policy will remain in place. Your loved ones also will still be entitled to receive the death benefit in the event of your death.
This is obviously the bigger issue.
If you have a term life insurance policy (such as Haven Term from Haven Life), and you are unable to pay your monthly life insurance premiums, your life insurance policy issuer is likely to terminate the policy.
You will not be refunded the premium payments you have already made, and your beneficiaries will not receive a death benefit in the event of your death. Essentially, it will be as if you have canceled your policy. (At Haven Life, there is a 30-day grace period, and your policy will end if you do not make a payment after that time expires.)
If you have a whole life insurance policy, your policy typically has a cash value that grows over time. If you are unable to make payments, it’s possible the accumulated cash value can cover your premiums for a time. If not, your policy will end, and your beneficiaries will not receive a death benefit in the event of your death. Again, it’s as if you have canceled your policy.
Moreover, the cash value from your whole life insurance policy might be used to help pay off your debts as part of the bankruptcy process. If this happens, and you are unable to make future payments, your policy will lapse.
You might also like 
A very simple way to accomplish a very important task
In the event that you need to replace a life insurance policy lost during the bankruptcy period, you can apply for a new policy during or after bankruptcy, but it will be more difficult than it was before. Not only are you older (which will translate to a higher premium), but insurers examine your credit score, and may offer you higher premiums as a result.
You might also need to wait — if you filed for Chapter 7, for example, you might need to wait a year or two before an insurer will offer you a policy, due to the risk involved. If you filed for Chapter 13, you’ll likely face fewer restrictions, but you will still be offered a higher premium for the same amount of coverage.
Suffice it to say that bankruptcy is an incredibly difficult time. If you have questions about an existing Haven Term policy, you can contact us and we would be happy to help. If you’re interested in applying for a new policy, start by getting a free online quote today.
The answer to that question is easy (which is exactly how Haven Life makes applying for term life insurance)
Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.
Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.
Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.
MassMutual is rated by A.M. Best Company as A++ (Superior; Top category of 15). The rating is as of Aril 1, 2020 and is subject to change. MassMutual has received different ratings from other rating agencies.
Haven Life Plus (Plus) is the marketing name for the Plus rider, which is included as part of the Haven Term policy and offers access to additional services and benefits at no cost or at a discount. The rider is not available in every state and is subject to change at any time. Neither Haven Life nor MassMutual are responsible for the provision of the benefits and services made accessible under the Plus Rider, which are provided by third party vendors (partners). For more information about Haven Life Plus, please visit: https://havenlife.com/plus
Read our disclosuresLife insurance agents help you navigate the life insurance process, including selecting a policy. However, not everyone needs an agent. Find out more in this guide. Read more
If you depend on someone financially, you might wonder if they have a life insurance policy. Learn how to find out Read more
An error occurred. Please try again later.
Get our most-read stories, twice a month
Thanks for signing up. See you in your inbox soon.
Haven Life Insurance Agency (Haven Life) offers a simple online experience for buying dependable and affordable term life insurance. We're committed to making life insurance less time-consuming and far more rewarding.
© 2023 Haven Life Insurance Agency, LLC
A medical exam is required for most Haven Term applicants, but never for Haven Simple.
Haven Term is a Term Life Insurance Policy (ICC21 HAVEN TERM in certain states, including NC; HAVEN TERM CA21 in California) issued by C.M. Life Insurance Company (C.M. Life), Enfield, CT 06082. In New York (DTC-NY) and in other states it is issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001.
Haven Simple is a Simplified Issue Term Life Insurance Policy (ICC20 HAVEN SIMPLE in certain states, including NC; HAVEN SIMPLE CA20 in California). It is issued by C.M. Life Insurance Company, Enfield, CT 06082.
Haven Secure is a Term Life Insurance Policy (ICC20DTR 0420 in certain states, including NC). It is issued by C.M. Life Insurance Company, Enfield, CT 06082.
Haven Disability is a Short Term Disability Insurance Policy (ICC20-HLSTDI-POL) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in Arkansas is 100139527.
Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas is 100139527.
Haven Life Insurance Agency is committed to making it simple for everyone to financially protect their loved ones. Ensuring our website is accessible to all is of fundamental importance to us, and we have worked with web developers, designers, and consultants to build it with accessibility in mind. Our website is designed in compliance with the Americans with Disabilities Act ("ADA") and other applicable law, and any changes or additions to it will comply with the ADA and other applicable law. If you encounter any accessibility issues with our website, please contact us at help@havenlife.com.
