What happens to my term life insurance policy when I file bankruptcy?

Nothing.

Your term life insurance policy has no cash value, which means that we have no danger of losing it in the bankruptcy.  So long as you keep making your regular monthly payments, you can keep the policy going throughout your bankruptcy and after you receive your discharge.

The reason people worry about this relates to some whole life insurance policies, which are really investments that have a cash value if you wanted to cash out the policy and use the money today.  In most cases, the cash value is not safe in bankruptcy, and a bankruptcy trustee could order you to liquidate, or cash out, the whole life policy so that he can use the money to pay your creditors something from the bankruptcy estate.

Term life insurance policies are different because you cannot cash them out.  They have virtually no value unless someone dies and there is a large payout from the policy right before the case is filed or during the time that your case is open.

Leave a Reply