Among our biggest nightmares is filing for bankruptcy. However, this could happen on some people and when it comes, we should try the best we can to protect our assets, including the life insurance policy. In general, the long-term life insurance policy should be considered as a valuable property. In some cases, creditors would simply try to acquire some values from the policy.
In this situation, it is important for consumers to know more about life insurance and how it could affect them. First of all, we should know that many people file for bankruptcy and the number can be higher than we might imagine. With the mounting bills, high taxes and economic downturn; the rate of bankrupt-filing is always high. Millions of people have filed for bankruptcy for different reasons, such as medical bills.
The eventual coming of our death is something that some people are reluctant to talk about. However, we should know that there are financial implications of death, especially among the surviving family members and dependants. It is important for us to talk about financial issues of untimely death, especially if we really care about our family. In this case, we should avoid bankruptcy filing from interfering with the continuity of our life insurance policy.
There are two types of bankruptcy filings that people can choose. With Chapter 13 bankruptcy, we are allowed to retain the ownership of our property and we are at less risks of losing it. However, we will be given a specific time period, usually up to five years to repay the debt. If we believe that the cash value of the life insurance policy is much higher than the financial liability, we should choose Chapter 13 bankruptcy.
With Chapter 7 bankruptcy, we will be required to liquidate our assets and possessions. The entire process could take about four months. This could mean that our overall life insurance policy may be affected. The worst thing that can happen to us is that our assets are liquidated. Even if our life insurance policy isn’t affected, we could also reduce its value by borrowing against it.
So, it can be considered a financial downturn if we drain $10,000 from our long-term life insurance policy for the credit card debt. In this case, we should avoid selling homes and cars without proper exit strategy. Our proper game plan is that we try to keep our assets as much as possible. We should try to have an accurate cash value of our whole life insurance policy.
During the bankruptcy process, we may be allowed to choose between state and federal exemptions. If we choose federal exemptions, we could potentially protect more than $10,000 of the overall cash value of life insurance policy. The amount can be doubled for married couples. In order for the life insurance to be protected, it may need to be in force for specific amount of period, such as two years or more. We may also need to be a resident in specific location.