Declaring Bankruptcy Can Affect Life Insurance Rates

Filing for bankruptcy is a popular option for many consumers who are drowning in debt.  It's important to understand how declaring bankruptcy will affect all aspects of your financial situation, including life insurance policies.  According to the article "How Declaring Bankruptcy Affects Your Life Insurance Premium Rates" from the Saving to Invest website, a bad credit score will negatively affect life insurance rates and filing bankruptcy does not help.

If you happen to already own an existing life insurance policy, the bankruptcy court usually leaves it alone to protect beneficiaries.  If you have permanent life insurance, you can generally retain part of the cash value that has already accumulated.  How much you end up retaining will depend on what state you live in since regulations vary from state to state.  Life insurance policies taken out on someone else, such as a child or spouse, are often surrendered to the court once the bankruptcy has been filed.

Just like most financial institutions, a poor credit score can be interpreted as irresponsibility and will cause most life insurance companies to worry about you paying your premiums on time.  This will ultimately affect your rate drastically, or you may not qualify for the insurance policy you want at all.  There is varying advice out there on when you should apply for life insurance and what type of life insurance is best after a bankruptcy, but waiting to apply for life insurance could put your family at risk.

It's important to work hard on bringing up your credit score as quickly as possible, and if you end up paying higher premiums for a 10-year term life insurance policy it may be worth it to reapply once your bankruptcy no longer appears on your credit report.  A discharged bankruptcy can remain on a credit report for 7-10 years but assuming your credit is handled well during this time frame, a credit score can return to good standing by the time the bankruptcy falls off.