Term insurance is the simplest. You pay a monthly premium, and if you die young your beneficiary gets a stated benefit. Term insurance has no value of its own (until you’re dead, anyway), and can’t be cashed in or borrowed againt. It is property, and should be listed on your bankruptcy petition schedules, but since it has no value, it is of little consequence to your bankruptcy case.
“Whole” life insurance (sometimes called “universal” life) is a different sort of beast. Here, your premiums are invested, and after a while the policy itself has value — you can cash it in. In a bankruptcy, this kind of policy could potentially have to be turned over to a bankruptcy trustee to pay your creditors. But this isn’t neccesarily so in every case; debtors can use Massachusetts, New Hampshire or federal wild-card bankruptcy exemptions to keep their insurance policies even after they file.
If you are going to meet with me or any other bankruptcy attorney, you should bring any whole life policies you have, along with the most recent statement from the insurance company to your consultation.
By Doug Beaton