Bankruptcy and My Life Insurance Policy
When you file an Assignment in Bankruptcy, your Trustee in Bankruptcy will ask you for a copy of your life insurance policy. He is not doing this to be nosey about your affairs. He is looking to see if it is a term insurance policy or a whole life policy that may have a cash value. The trustee must determine if the cash value to the policy is an asset of your insolvent estate. The trustee must not infringe on the rights of the beneficiary to your life insurance policy. If you have designated your “estate” as your beneficiary, the trustee will normally take the cash value or offer to allow you to pay what the trustee would have received had he taken the cash value. The trustee will not cancel your life insurance policy. If you cooperate with your trustee, the insurance company and your life insurance agent may not even know that you filed a bankruptcy.
There is, of course, one other matter that your trustee is interested in. If you pass away while you are still an undischarged bankrupt and you have designated your estate as the beneficiary of your insurance policy, then , the proceeds of the policy would be payable to your trustee. Your trustee would first pay your funeral and testamentary expenses and distribute the balance to your creditors after the trustee’s fees and expenses. If there is any money left over, it would be turned over to the executor of your estate.
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