Question: I have a life insurance policy with a cash surrender value. I also own critical insurance. The life insurance policy has a cash surrender value of 5000 at the moment.Will this money be taken away from me if i file for bankrupcy? will i be able to keep my life insurance if i continue making the monthly payments? What happens with my critical insurance policy if i have a heart attack and i get paid for that? will my trustee garnish any money from that policy? If i make a loan from my life insurance policy before bankrupcy,will that affect me if right after i go bankrupt?
thank you
Answer: The rules surrounding life insurance and bankruptcy are complicated. In general, if your life insurance policy has a cash surrender value, you lose that value. In other words, if you went bankrupt, you would be required to pay $5,000 into your bankruptcy estate in order to keep the life insurance policy. However, the rules are more complicated than that, because the trustee will also consider the named beneficiary of the policy.
Since a critical illness policy probably has no cash surrender value, that policy would probably not be effected by your bankruptcy.
For a complete review of your insurance policies, bring your complete policies to a licensed trustee for a full review before you file bankruptcy.