What happens to life insurance if I go bankrupt?
Life insurance is an important tool that can provide financial protection for the surviving family in the event of an unexpected accident. That is why, among those who are considering bankruptcy, those who have life insurance are curious about the impact that bankruptcy will have on their life insurance.
To understand the impact of bankruptcy on your life insurance, you must first understand the types of life insurance. There are two main types of life insurance. These are term life insurance and whole life insurance.
First of all, term insurance is a type of term insurance that covers only a certain contract period. Contract terms are typically 10, 20 or 30 years. Term insurance is a form of insurance in which the insured is paid to the beneficiary only if the insured dies during the term of the contract. That is why, from a bankruptcy law perspective, term insurance is not considered an asset. In other words, if you go bankrupt, your term insurance will not be affected. However, if the monthly premium you pay for term insurance is too high, bankruptcy executors may raise an issue.
Whole Life Insurance is a type of life insurance that covers the life of the insured until the death of the insured for no specific period of time. The biggest feature of whole life insurance is that cash value is accumulated. A portion of the insurance premium paid by the subscriber is accumulated, and interest is accumulated on it, generating cash value. The accumulated cash value can be borrowed in the form of a loan. You may also get some money back if you cancel your membership before your death. That is why, from a bankruptcy law perspective, whole life insurance is considered an asset.
So, what is the cash value of Whole Life Insurance if you file for bankruptcy? In principle, in bankruptcy, the applicant’s property is disposed of, and the money disposed of is used to pay off debts. However, in order to lead a basic life even after bankruptcy, basic assets necessary for living are exempted from disposal. The exemption limit is set by law. Therefore, if the sum of the value of the other assets of the applicant for bankruptcy and the cash value of whole life insurance does not exceed the exemption limit, all assets, including life insurance, can be protected after bankruptcy. You may have to.
The purpose of bankruptcy is relief. But bankruptcy also requires strategy. In fact, many Chapter 7 applicants have whole life insurance and keep it even after bankruptcy. Therefore, if you are thinking of starting anew through bankruptcy, we strongly recommend that you consult with a bankruptcy attorney as soon as possible.