Many people who are considering filing for bankruptcy have life insurance policies and do not want to loose them by filing bankruptcy. However, your life insurance policy may not actually be considered a part of your bankruptcy estate or, if it is considered a part of your bankruptcy estate, there might be an exemption that will allow you to protect it. Whether your life insurance policy will be considered a part of your bankruptcy estate first depends on what type of life insurance policy you have. The second big consideration is who the beneficiary is on your life insurance policy. There are two main types of life insurance polices, Term Life Insurance and Whole Life Insurance, which we will discuss in turn.
Term Life Insurance:
Term Life insurance is life insurance that does not have any cash value while you are alive. Instead, upon your death it will provide proceeds to your designated beneficiary. In other words, it does not mature until your death. Thus, Term Life Insurance is not considered a part of your bankruptcy estate, because there is no “cash value” for your bankruptcy trustee to administer and provide to your creditors.