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Does Bankruptcy Offer Protection for Life Insurance Policies?

Posted By Allmand Law Firm, PLLC || 9-May-2013

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.

Categories: Bankruptcy
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