Does Bankruptcy Affect Life Insurance?

Are life insurance Proceeds exempt from bankruptcy?

What if you’re the beneficiary of a policy and the insured dies before you file for Chapter 7? In this scenario, you’re received a life insurance death benefit and probably want to know how the bankruptcy court will look at it. Bankruptcy courts will want to know the date you were paid the life insurance death benefit when deciding on your exemption status.

  • What if I received a death benefit before I filed Chapter 7?  If you receive the death benefit before you filed for bankruptcy, the life insurance benefit will be looked at as a cash asset. Just because the money came from a life insurance policy will not matter. 
  • What if the insured died within 180 days after I filed Chapter 7? What’s important is the date that the insured died. The date that you receive the death benefit is not important. If the insured died 1 month after you filed Chapter 7, the death benefit you’re going to receive is property of your estate. The reason is because the death came within 180 days of the bankruptcy filing. You will have to notify the bankruptcy court and take proper exemptions in order to protect your funds.
  • What if someone dies 6 months after you file your Chapter 7? If someone dies 6 months after you filed a Chapter 7 case and left you life insurance money – the life insurance benefit you received is not property of the estate. The reason is you were not entitled to acquire or did not acquire the life insurance money within 180 days after filing for your bankruptcy.

Does Bankruptcy Affect Life Insurance

The bottom line is yes. Life insurance after bankruptcy can affect your premiums and your ability to get coverage immediately. We hope this article helped clarify and answer your questions.

If you have any further questions, please reach out to us and we’d be happy to assist you. Buying life insurance and filing for bankruptcy are both serious in nature, so make sure to take action accordingly.

Does Bankruptcy Affect Life Insurance? At LIB, we have years of experience helping applicants who filed for bankruptcy and need coverage. We understand that shopping for life insurance can often be frustrating and confusing. When you have experienced a bankruptcy, it can compound this frustration. You don’t need to wait any longer to find the life insurance coverage your family needs – we’re here and ready to help you.

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