Bankruptcy and Life Insurance Policies
It is possible to have your life insurance policy be protected in
bankruptcy
under certain circumstances. While there are different types of life insurance,
this information pertains to simplified whole life and term life insurance
policies since a wide majority of consumers have these types most often.
There are factors to review in understanding how the insurance policy
qualifies for protection when your case is filed.
Term Life Insurance Policy
A term life insurance policy may not have value associated with it until
a person’s death. Meaning, if you are the beneficiary of the policy
it doesn’t mature until the death occurs. But, if you file bankruptcy
you can list the premiums you pay each month as an expense if it is a
part of your monthly budget. In short, the policy would have no protection
since there is no value.
Whole Life Insurance Policy
A whole life insurance policy may have a cash surrender value based on
previous premium payments made overtime. This allows the policyholder
to borrow against it. Some may exercise this option when they have funds
to pay off the debt, then they will repay what they borrowed to the insurance
company. The state you reside in may have an exemption that helps protect
the policy if your spouse and/or children are listed as beneficiaries.
Keep in mind, proceeds from a whole life policy or term life policy become
part of your bankruptcy estate if you are listed as a beneficiary on the
policy and the person dies during your bankruptcy case. Consult with your
bankruptcy lawyer in Dallas-Fort Worth if you believe you may receive
life insurance proceeds upon filing.