Life Insurance after Bankruptcy

Written by Life-Wealth-Win

Life insurance after bankruptcy can be a challenge. It can be a frustrating process when you’re applying for life insurance. The insurance carriers are looking at different factors to determine if you’re eligible for coverage. They decide whether they can give you a policy at the level of risk you present to them.

While each situation is unique, there are different kinds of bankruptcies, and each has a different effect on your life insurance applications. Bankruptcy proceedings can make it hard to get a life insurance policy. One of the problems with bankruptcy is the time that it stays on your credit report.

A complete bankruptcy can remain on your credit report for up to 10 years. Bankruptcy can continue to have some effect on your application for life insurance, for as long as it appears on your credit report.  The impact will be more significant if you file for bankruptcy recently. But if several years have passed, you may reestablish credit during that time; thus it will be less of a factor.

This article is going to explore how bankruptcy is going to impact your life insurance application and ways how to get the most affordable life insurance coverage available.


The quick answer is YES. You can buy life insurance if you have a bankruptcy on your record. But, you may not be able to buy a policy right now. You might have a difficult time getting a life insurance policy if you declared bankruptcy in the last two years.

The timing to get a policy depends on the life insurance company, so don’t forget to tell your life insurance agent that you have a bankruptcy on your record so that he can help match you with the best insurance carrier for your situation.

If you have more than one bankruptcy on your record, you may have to wait even longer, sometimes up to five years after your most current bankruptcy was discharged. Having a bankruptcy on your record may not affect your life insurance premiums unlike health issues, but it will affect your ability to be approved for life insurance.

You may have an easier time getting a policy depending on the type of bankruptcy you file for. If you’re in the middle of a Chapter 7 bankruptcy, it must have been discharged at least a year ago although some insurance companies will require you to wait two years.

If you’ve filed for Chapter 13 bankruptcy, you may be allowed to get life insurance before your bankruptcy is discharged. There’s no general rule for this; however, most life insurance companies look at ongoing Chapter 13 on a case to case basis.

The difference between Chapter 13 and Chapter 7 bankruptcies is that Chapter 13 usually involves some type of debt repayment program which allows you to hold onto certain assets. While Chapter 7 bankruptcies, discharge some of your debts and let you have a fresh start.


Chapter 7 Bankruptcy

The most common type of bankruptcy is Chapter 7 it is also known as straight bankruptcy, complete bankruptcy or liquidation. Chapter 7 bankruptcy allows the debtor to make a fresh start. When this is filed, the trustee can collect the debtor’s nonexempt assets and reduced it to cash. Then it will be distributed to creditors in accordance with bankruptcy law.

In most Chapter 7 bankruptcy the debtor receives a discharge releasing him from personal liability for some dischargeable debts. Chapter 7 is your best option if there is no hope of repaying any of your debts. Businesses that want to liquidate their asses and discontinue business can also file under Chapter 7.

Chapter 11 Bankruptcy

This type of bankruptcy is also known as “reorganization” this allows the debts to be repaid. The debtor or business is allowed to continue to function and maintain ownership of assets while paying off debtor. Strict monitoring of assets and cash flow is enforced. Chapter 11 is used by an individual or business with a significant amount of due, who is trying to move forward while systematically paying off the obligations.

The debtor has the right to file a plan for reorganization within 120 days after the order of relief. They must provide creditors with a disclosure statement that allows the creditor to evaluate the plan. The debtor has different options to return the business to profitability. He can reduce debts by repaying a portion of them, discharging burdensome contracts and rescaling operation of the business.

Chapter 13 Bankruptcy

This type of bankruptcy is designed for someone who has a regular income wanting to pay his financial obligations but is currently unable to do so. Chapter 13 is more preferable than Chapter 7 because this bankruptcy allows the debtor to keep valuable assets, like his house. The debtor may propose a plan to the Court on how to pay creditors in three to five years.

If the Court approves of the plan, the debtor will make payments to the creditors through a trustee. It gives the debtor the protection against lawsuits from creditors. After completing the plan any remaining debts are discharged. You can file Chapter 13 bankruptcy if you owe debts that cannot be discharged under Chapter 7 bankruptcy, such as child support, taxes or if you have liens that are larger than your assets used to secure the debt.


Ongoing bankruptcy can impede your ability to get a life insurance policy. In most cases, it can lead to different consequences:

Higher premiums: The insurance company may approve your application. But because you are considered a high-risk client, they will increase the monthly premium to protect themselves. Generally, the longer you wait to apply for a policy after a bankruptcy, the less financial impact on your application. Your premium will be higher six months after a bankruptcy discharge than two years after bankruptcy.

Waiting periods: The insurance provider may give you a life insurance policy, but may impose a waiting period to protect the company. Your beneficiaries will not receive a life insurance payout during the waiting period which is typically two to three years. You must live through the waiting period. The beneficiary will only receive your full death benefit after the waiting period.

Rejection of application: A recent filing of a bankruptcy can lead to rejection of life insurance application. The insurance carrier may consider you too risky to cover and deny you a policy. In most cases, they will recommend you to try again after a certain period. It can be some months and years depending on how long it has been since your bankruptcy case was dismissed.

With most life insurance applications, time is a crucial factor in determining whether or not you can get coverage. The longer the time since your bankruptcy is dismissed the better.


Insurance companies consider many factors when determining if they will grant you a policy and the level of risk you present to them dramatically impacts what kind of coverage you will receive and how much is your monthly premium. There are several reasons why bankruptcy is seen as a risk by the life insurance companies:

Stress and Anxiety:  The stress of bankruptcy can cause some people to sink into anxiety and worry during the emotional rollercoaster of bankruptcy. Continuous stress and anxiety can lead to anxiety disorder. Although most anxiety disorders are highly treatable, life insurance companies consider this condition a risk when reviewing and approving a life insurance application.

Depression: Depression is considered a high-risk life insurance category, and people who have filed bankruptcy are more likely to be depressed or develop a level of depression after the bankruptcy. The effect can be long-term and therefore will increase your level of risk to the insurance company.

Suicide: Possible suicide is a risk the life insurance carrier takes when issuing life insurance policies, this added risk adds cost to the life insurance policy. Life insurance payout is sometimes seen as a way out by people under bankruptcy as a solution to their financial problem. That’s why most life insurance policies have a suicide clause, preventing payout if a person commits suicide in the first two years of the policy.

Credit: Credit can also represent a risk. Poor credit can be proof of other risk factors particularly the financial risk. Bankruptcy represents bad credit which life insurance companies consider as a risk. Bad credit could cast doubt on your ability to pay the premiums.

The highest cost of providing a life insurance policy happens in the first two years of the policy. It is the time where the insurance company uses the premiums to recover the costs associated with application underwriting. It includes paying employees to underwrite the application, obtaining medical reports, and paying for third-party fees in the process.

If you lapse the policy during the first two years that it is in force, the insurance company can lose money on the transaction. Losing money raises their cost of doing business, which makes the insurance providers consider an applicant with bankruptcy to be a higher risk.


Each insurance carrier is different in how they look at bankruptcy. The type of bankruptcy Chapter 7, 11 or 13 will matter as well. The more time has passed since bankruptcy discharge, the less issue it is to the underwriter. It will still be considered in your overall financial picture, but it will be much less significant.

When you’re trying to get life insurance with a history of bankruptcy, be aware that you will be required to provide more financial documents than ordinary life insurance applicants.

When you’re applying for life insurance, you’ll need to show:

  • Proof of income through income verification questionnaires
  • Stable employment
  • Bankruptcy discharge papers
  • Tax returns

Steps for Life Insurance after Bankruptcy

  • If you filed for Chapter 7 bankruptcy, you may need to wait for a year before applying
  • Discuss your bankruptcy with your agent when you apply
  • Keep the dates of your fillings and discharge at hand
  • Understand your current budget

Not all life insurance company underwrite life insurance policies the same way, so working with an independent life insurance agency like Life Wealth Win is essential. We have contact with different A-rated carriers, and we can match you with a company that is lenient when it comes to bankruptcy.


Bankruptcy can remain your credit report for a long time. A Chapter 7 bankruptcy which is a complete bankruptcy can remain in your credit report for up to 10 years. That can affect your life and your ability to apply for life insurance, for as long as it appears on your credit report.

If you filed for bankruptcy just recently, the impact on your life insurance application will be more significant. But if several years have passed after the bankruptcy discharge, and you have reestablished credit during that time, it will be less of an issue.

In either case, you have to expect some increase in your premium rate based on how long your bankruptcy happens. The insurance carrier will use the increased premium as a protection against an early term lapse in your policy.

Considering that bankruptcy represents a genuine risk when applying for life insurance, you might decide to wait until it is removed from your credit report. But that will not be a wise decision since it could take up to 10 years. That’s quite a long time to go without coverage, especially if you have family members who are dependent on your income. The lack of life insurance coverage can leave you exposed financially when you die.

Taking a higher premium policy will be a better option, and when the bankruptcy falls off your credit report you can switch to a new policy. At that point, if a lower premium is available, you can take advantage of it. But, if your health has deteriorated, you can always stay with the first policy you purchase.


It can hurt if your life insurance application is rejected because of bankruptcy. Do not be discouraged, not every life insurance company has the same rules in underwriting. Some carriers may still choose to give you coverage even if other companies have rejected you.

Independent life insurance like Life Wealth Win can help you seek the right company that fits your budget. The life insurance application process is free, so don’t be afraid to shop around with your options and try again. Be honest about your financial and medical background when applying – it can be tempting to withhold details to get coverage, especially after rejections but you will still be denied if they find out that you lied.

Whether you are just starting your search for a life insurance policy or have been rejected after bankruptcy, it is important to speak with a life insurance specialist to see what your life insurance policy options are after bankruptcy.


There are a few ways to get lower insurance premiums even if you filed for bankruptcy. One way you can get lower rates is to stop smoking. Expect higher premium if you’re listed as a smoker on your life insurance application. Smokers rates are often double that of a non-smoker.

Another way to save money on premiums is to compare several insurance companies before you decide which one is best. Every insurance carrier is going to look at your bankruptcy differently, which means you could get varying rates depending on the carrier you contact. Some carriers have stricter views on bankruptcy and may charge a higher premium. It’s important to compare different quotes before you pick one.

Life Wealth Win has years of experience working with people who filed for bankruptcy in the past. We work with many top-rated insurance companies so that we can shop around for you. We can help you save time and money looking for the best plan. Call us at (888) 435-4342, and we will be happy to assist you.

About Life-Wealth-Win
About Life-Wealth-Win

We work with individuals across the nation to secure the best life insurance rates.

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