How Bankruptcy Impacts Your Life Insurance Application

What is Bankruptcy and How Does it Impact Insurance?

Bankruptcy is a legal process that allows individuals or entities who are unable to pay their debts to creditors to seek relief. Being bankrupt or having a history of bankruptcy can make an individual a riskier prospect for life insurance companies, as they may not be able to meet their obligations in the future. Let’s take a closer look at how bankruptcy impacts life insurance applications, but first, let’s learn more about how many Canadians face this issue.

Recent statistics on bankruptcy in Canada show that insolvency filings are on the rise. According to a report from the Office of the Superintendent of Bankruptcy, there were 9,784 insolvencies across Canada in November 2023, which is 17.5% higher than in November 2021. Additionally, a total of 8,735 consumer insolvencies were filed in January 2023, according to another report. This number is significantly greater than last year’s figures.

It appears that Canadian bankruptcy statistics are rising due to high inflation and interest rates. It is important for Canadians to be aware of these trends so they can make informed financial decisions and avoid falling into debt.

Being Discharged vs. Undischarged from Bankruptcy: What Does This Mean?

There are two different types of bankruptcy: discharged and undischarged.

A discharged bankruptcy occurs when the individual has completed all of the requirements of the bankruptcy process and is released from their debt obligations. This typically happens nine months after filing for bankruptcy but can take up to 36 months for second-time bankruptcies. Once discharged, the individual or business can begin rebuilding their credit score and start fresh financially.

An undischarged bankruptcy occurs when an individual has not yet met all of the requirements of the bankruptcy process and is still legally obligated to repay their debts. This could be due to failure to complete required paperwork, attend meetings with creditors, or make payments on time. It’s important to note that even if you have been declared bankrupt, you may still be responsible for certain debts such as student loans or child support payments.

For example, John filed for bankruptcy in January 2021 but failed to attend his creditor meeting in April 2021. As a result, John’s bankruptcy remains undischarged until he meets all of his requirements and is officially released from his debt obligations.

An undischarged bankruptcy is typically worse for an insurance application than a discharged bankruptcy. This is because an undischarged bankruptcy indicates that the debtor still owes money to their creditors and therefore poses a higher risk to insurers. Insurers may consider an individual with an undischarged bankruptcy as more likely to default on payments or be unable to pay their premiums, which can result in higher premiums or even denial of coverage. In contrast, a discharged bankruptcy means that the debtor has been released from debts and is no longer obligated to pay them back, making them appear less risky to insurers.

Having a bankruptcy on your record can impact your ability to obtain insurance coverage, but an undischarged bankruptcy is generally viewed as having a more negative effect on insurance applications.

Individuals with either type of bankruptcy should work with a broker to find the best insurance solution for their situation. A simplified issue or guaranteed issue policy may be a more viable option – and in some cases the only options – for those seeking insurance while dealing with bankruptcy.

Does the Number of Bankruptcies Impact Your Life Insurance Application?

While some people may only experience one bankruptcy in their lifetime, others may find themselves in financial trouble multiple times. There are several reasons why this can occur, including unforeseen circumstances such as job loss, illness, divorce, or simply poor financial management.

Regardless of the reasons, having a history of multiple bankruptcies can put additional risk on an insurer, as it suggests that the individual may be more prone to financial difficulties in the future. As a result, underwriting criteria for insurance policies are often stricter for those with a history of multiple bankruptcies. Insurers may require a certain amount of time to pass since the release from the last bankruptcy before considering an individual for coverage. This waiting period can vary depending on the insurer and the type of policy being sought.

For example, if you have gone through multiple bankruptcies, it may be more difficult to obtain traditional, also known as standard, insurance coverage. One option for those with a history of multiple bankruptcies is to consider a simplified or guaranteed issue policy. These types of policies generally have less stringent underwriting requirements and require less detailed financial information. However, they typically come with higher premiums and lower coverage amounts compared to traditional policies.

It’s important to note that bankruptcy is not a permanent stain on your financial record. With time and effort, it is possible to rebuild your credit and financial standing. Seeking professional financial advice and creating a solid budgeting plan can help prevent future financial difficulties and improve your chances of obtaining insurance coverage.

For What It’s Worth with Rubina Ahmed-Haq

Lorne Marr’s expert insights about Life Insurance and Bankruptcy

Listen the full podcast with Rubina Ahmed-Haq at

Life Insurance Company Perspectives

We talked to three experts to gain further insights on how to get life insurance if you have a history of bankruptcy. Here is a summary of what our experts said:

Similar to obtaining a mortgage or credit card after filing for bankruptcy, this could limit your insurance options

There are situations when clients will need to file for bankruptcy/consumer proposals but will still have the need to be protected with life insurance. Similar to obtaining a mortgage or credit card after filing for bankruptcy, this could cause a limit in coverage amount, a rating on the premium, a limited selection of products, or even a decline.

Every insurance company has various criteria for determining what the client will qualify for after a bankruptcy, but here are the typical parameters:

  • If released/discharged: no restriction on the insurance amount.
  • If not yet released/discharged: maximum $100,000 (total insurance amount).
  • If multiple bankruptcies, the life insured must be discharged for at least one year. After one year, no restriction if the applicant has stable employment and good income.

Barry Rubin, Director, Business Development at Beneva
Read more from Barry Rubin

Considering an application once the bankruptcy has been discharged.

Underwriting guidelines postpone anyone who declared bankruptcy that has not been discharged at the time of the insurance application (this also includes a consumer proposal.). Consideration is given once the bankruptcy has been discharged. Credit scores are not requested or provided as part of our underwriting process.

Insurance expert at Bank of Montreal

Multiple past bankruptcies would not necessarily warrant an application decline

For multiple past bankruptcies the application would definitely get a bit more attention when assessing financially, more so in the higher face amounts, but it wouldn’t necessarily warrant a decline (depending on the details).

Most all carriers would have some form of limitation on the face amount they will issue for a reoccurring history of bankruptcy.

As with any case, there are specifics that can influence leniency. For example, the bankruptcy is corporate and the client is asking for personal insurance. The specifics can also influence severity. For example, if the client has a very significant history of psychological disorders along with ongoing bankruptcy.

As far as poor credit goes, it could impact underwriting in the sense that it becomes an unfavourable factor, but most likely none of the companies would base their decision solely on a credit score or credit data. Depending on the details of this “poor credit”, the face amount, and the client’s overall history, the credit details just become part of the overall risk that needs to be assessed.

Mathieu LeBlanc, Insurance Expert

Need Insurance? Contact Our Brokers Today

We hope you found our expert panel helpful if you are looking for life insurance although you have had to deal with a bankruptcy. Remember, it is possible to get life insurance even if your financial past is not as tidy as you would like it to be.

It’s important to work with a broker when trying to find the best insurance policies. A broker will explore multiple options from different carriers to find the best coverage for your individual needs. Brokers are also experts in navigating the complexities of insurance policies, explaining terms and conditions so you can make informed decisions.

Obtaining the right type of life insurance policy can be a daunting task, but our brokers, who have access to the most policies on the market, will help make the process much easier. With our expertise, we can guide you through the maze of options and negotiate the best rates on your behalf.

Don’t wait any longer to secure the financial future of your family. Fill out an insurance quote request today to begin the process of obtaining the right type of life insurance policy. Our team of professionals is ready to help you every step of the way.

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