Life Insurance And Bankruptcy | Avoid 5 Big Mistakes

You CAN buy life insurance if you have declared bankruptcy.

However, the specific type of policy qualify for is dependent on a number of important factors.

There are five big mistakes you need to be aware of so that you can buy the best form of life insurance you are eligible for.

Here, we’ll describe those mistakes in detail and explain what to do instead.

Table Of Contents

  1. Bankruptcy And Life Insurance
  2. Underwriting
  3. Best Companies
  4. FAQs
  5. Next Steps

Bankruptcy And Life Insurance

Learn the most common pitfalls applicants run into when attempting to buy life insurance after bankruptcy.


Think of this list as necessary homework.

You’ll want to take the time to understand your options, because, despite going through a devasting financial experience, your loved ones need financial protection.

Here are the most important bankruptcy mistakes to avoid pertaining to buying life insurance.

1. Bankruptcy Chapter And Life Insurance Approval

Mistake #1 – you are unaware of how your specific type of bankruptcy affects your ability to buy life insurance.

Life insurance companies view each chapter of bankruptcy differently.

There are different types of bankruptcies, which are usually referred to by their chapter in the U.S. Bankruptcy Code.

U.S. Courts

It’s in your best interest to be knowledgable on how carriers handle the different chapters.

Chapter 7

The liquidation of your assets during a time when you are unable to pay your debts. In other words, your assets are sold and the proceeds are distributed to your creditors.

If you are still in the process of Chapter 7 bankruptcy, and the declaration has not been discharged yet, you may have a difficult time securing traditional coverage.

Typically, carriers will require your Chapter 7 bankruptcy to have been discharged for at least 12 – 24 months.

However, you may be able to find a few select carriers who will approve your application if you are still in the midst of declaring. A caveat, though, is that you will likely need to demonstrate strong financials.

Chapter 13

Also called the wage earner’s plan, Chapter 13 allows someone with a stable income to generate a schedule to repay some or all debts.

Generally speaking, it’s somewhat easier to qualify for coverage after Chapter 13 than Chapter 7.

Why? Chapter 13 is not as harsh as Chapter 7. In fact, some carriers will offer coverage before discharge.

Still, depending on the company, you may need to wait 6 – 12 months. Usually, underwriters evaluate the applications on a case-by-case basis.

Chapter 11

Often referred to as reorganization bankruptcy, Chapter 11 is reserved for businesses, corporations, and partnerships.

Typically, the debtor reorganizes funds to keep the business up and running while devising a payment plan for creditors.

Like Chapter 13, you may be able to find coverage before the bankruptcy is discharged, but it depends on the carrier.

Expect a case-by-case evaluation, and possibly waiting for 12 – 24 months.

Bottom line – have the details of your bankruptcy ready to go so that your agent can easily navigate through your options.

2. Carriers And How They Underwrite Bankruptcy

Mistake #2 – you apply directly with one life insurance company.

Each carrier implements its own specific underwriting process – meaning that bankruptcies are viewed through different lenses by different companies.

Bottom line – evaluating multiple carriers is a must. Work with an independent agent to find the best company to approve your application at an affordable rate.

3. Current Life Insurance Policy

Mistake #3 – you let your current life insurance policy lapse.

Even if you are in the midst of bankruptcy proceedings, do not fall behind on premium payments for an existing life insurance policy.

Almost always, life insurance policies are not subject to liquidation during a bankruptcy.

In other words, your beneficiaries will still receive the death benefit of your policy, as long as you kept your premium payments current.

Bottom line – an existing policy often has more affordable premiums than what you could qualify for, now. If you already have a policy, keep it.

4. Other Issues

Mistake #4 – you ignore other lifestyle or medical issues in your life.

Bankruptcies usually don’t occur in a vacuum.

Because experiencing financial devastation is, to put it lightly, emotionally catastrophic, you are at risk for additional health and lifestyle concerns.

Underwriters will want to know about:

5. Waiting To Buy Coverage

Mistake #5 – you wait to purchase life insurance.

There is no sugarcoating it – no one is guaranteed tomorrow.

If you don’t have life insurance in place, and someone depends on you financially, buy coverage today.

Even if you may qualify for lower rates in the future, we never recommend putting off buying coverage.

What we do recommend, however, is one of two things, once your approval options have improved:

  1. Ask your life insurance carrier for a re-rating – if your finances and/or health have improved.
  2. Apply for a new life insurance policy that will better fit your needs.

Bankruptcy And Life Insurance Underwriting

There are nine important questions you will be asked about your bankruptcy during the underwriting process of your life insurance application.

Grab a pen and jot down answers to the following questions.

  1. What chapter of bankruptcy did you file?
  2. Do you have a payment schedule?
  3. Are you currently employed? For how long have you been at your job?
  4. Do you have a planned discharge date?
  5. Are there previous bankruptcies, liens, or serious debts on your financial records?
  6. If already discharged, how many months have passed?
  7. Do you have current debt?
  8. What is your current income?
  9. Are you experiencing additional health and/or lifestyle issues?

Unless you provide detailed information about your bankruptcy, you run the risk of delayed underwriting, frustration, and sometimes a dropped application.

Important – take the time upfront to detail your bankruptcy, so that your application for life insurance is streamlined.

Best Life Insurance Companies For Bankruptcy

Often the following carriers underwrite bankruptcy favorably.

No Exam

If buying no exam life insurance is important to you – that is, skipping needles, nurses, and liquid samples – consider these.

Note – especially if you have additional health or lifestyle concerns, be sure to analyze the best no physical life insurance companies.

Life Insurance Companies That Will Approve Bankruptcy

CompanyApproval RequirementMedical Exam Required
Lincoln FinancialIndividual consideration of full financials Yes
John HancockMust be dischargedYes
Prudential Individual consideration of full financials; must be at least close to dischargeYes
ForestersEither discharged; or favorable financialsNo
SagicorMust be dischargedNo
Subject to change.

Frequently Asked Questions

Questions often asked about how bankruptcy affects a life insurance purchase.

Can bankruptcy court take life insurance proceeds?


Almost always, life insurance policies are exempt from the liquidation process of various chapters of bankruptcies.

Do I need to make life insurance payments during bankruptcy?


If you have a policy in place, continue to make your premium payments.

Can I buy whole life insurance if I am bankrupt?


Term life insurance and whole life insurance are available for purchase even after you have experienced bankruptcy.

Is my life insurance exempt from creditors?


Generally speaking, life insurance is exempt from creditors during bankruptcy.

Next Steps

Remember, specific chapters of bankruptcies are viewed differently by carriers.

Further, bankruptcy usually does not occur in a vacuum, meaning that you may have additional health or lifestyle concerns.

You need to plan on accomplishing two things to find the best life insurance policy you qualify for.

Do a little homework

Refer to the underwriting questions and write down detailed answers.

That way, you will avoid any delays or drops in your application.

Partner with an independent agent

It’s in your best interest, and is a must, really, to evaluate multiple carriers to understand how they underwrite and accept applicants with a bankruptcy on their record.

Independent agents (that’s us) will sit on the same side of the table as you so that you can easily evaluate your options.

Simply fill out your free quote to get started.