And a life insurance policy can be a big asset. It’s natural to be concerned about it. And due to the prevalence of “grey” bankruptcies, these questions are coming up a lot lately. Older Americans are more likely to have them than younger ones.
Keep in mind we’re discussing your policies here, not a policy you’re receiving proceeds from because someone else has died. That’s a different post and a different issue. Here’s what you need to know.
Term life insurance policies aren’t worth anything until you die. And when you do, any monies received pass to your beneficiaries, not to you.
Because it has cash value, this type of policy is an asset, and needs to be accounted for in your bankruptcy case.
If your policy is valuable enough to exceed the exemptions then protecting yourself means filing the right type of bankruptcy. You’ll file Chapter 13 instead of Chapter 7. You keep all your assets in Chapter 13 and pay your creditors on a court approved schedule. As long as you keep up with your plan you should be fine. If you end up converting your Chapter 13 to a Chapter 7 you may lose the ability to protect all of your whole life insurance policy’s cash value.