Author Bowtie Team
Updated on 2025-06-11
Disclaimer: This article is translated with the assistance of AI.
Ever wondered if filing for bankruptcy means losing your life insurance? We’ll break down whether policies get seized, if you can buy new ones, and if family can handle payments for you—clearing up the confusion with practical tips!
What Happens To Your Insurance After Declaring Bankruptcy?
During bankruptcy, all of a bankrupt person’s expenditures are strictly monitored, and non-essential expenses are prohibited, such as unnecessary taxi rides. Similarly, insurance products aren’t considered essential, so purchasing new policies after bankruptcy is not allowed .
Although you can’t buy new policies, whether you can keep existing ones depends on the policy type and specific circumstances.
Life Insurance
Life Insurance You Own Before Bankruptcy: Whole Life (Savings Type)
If a bankrupt person holds any policies with cash value, including savings-based whole life insurance, they will be required to terminate the policy and use the cash value or dividends to repay debts . During bankruptcy, the bankrupt person also can’t buy new policies for themselves.
While the bankrupt person can’t purchase new policies for themselves, if a family member holds and pays for the policy, and the bankrupt person is only the insured, this might not be restricted.
| Bankrupt Person as Insured, with Spouse and Children as Beneficiaries As mentioned earlier, policies like savings-based whole life insurance held by the bankrupt person would typically need to be terminated to repay debts, but in certain specific situations, an exemption might be possible: According to Section 13 of Hong Kong’s Chapter 182 Married Persons Status Ordinance , if the life insurance or savings life policy has the bankrupt person as the insured and the beneficiaries are their spouse or children, this policy arrangement forms a trust for the beneficiaries . However, if it’s proven that the policy was taken out or premiums paid with the intent to defraud creditors, the premium amounts could still be seized. |
Term Life Insurance You Own Before Bankruptcy (No Savings Component)
For non-savings policies held by the bankrupt person, such as term life insurance, which don’t have cash value or dividends, they won’t be required to be terminated to repay debts. However, during bankruptcy, the bankrupt person can’t continue paying premiums for these policies, so they might lapse after payments stop.
If the bankrupt person still wants life insurance coverage and to keep these policies active, premiums must be paid by a family member other than the bankrupt person.
Receiving Compensation as a Life Insurance Beneficiary During Bankruptcy
If the bankrupt person unexpectedly receives compensation as a life insurance beneficiary during bankruptcy, this asset could be considered part of their estate and used to repay debts.
Medical Insurance You Own Before Bankruptcy
Pure medical insurance policies held by the bankrupt person, as they are non-savings types, won’t be required to be terminated to repay debts. However, during bankruptcy, the bankrupt person can’t continue paying premiums, so these policies might lapse after payments stop.
If the bankrupt person still wants to keep these policies active, premiums must be paid by a family member other than the bankrupt person. Also, since medical insurance payouts are made directly to the policyholder on a reimbursement basis, to avoid any complications with the bankrupt person’s income or assets, it’s best to transfer these policies to the family member making the payments.
Bowtie Term Life Helps You Stay Insured
With economic ups and downs, if you’re worried about bankruptcy risk, go for a high value-for-money, pure protection term life insurance like Bowtie Term Life. Even if bankruptcy unfortunately happens, since it has no cash value or bonuses, the court won’t require you to terminate the policy.
As long as the bankrupt can get a friend or family member to help with the premiums, you can keep enjoying life insurance coverage. This product provides a one-time payout to the beneficiary upon the insured’s death, and its key features include:
- Pure protection, with absolutely no savings component
- Under the same premium, coverage is 40 times higher than general savings life products*
- For every $1 million in coverage, monthly premium as low as $38
- * Calculated based on the standard premium for a 35-year-old non-smoking female for $1 million coverage; Term life insurance: Data as of July 1, 2020, for 20-year term life insurance standard premiums in the market.
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