Bankruptcy Question............

[pfg1]

I have a prospect that came to me for help. In a pile of debt & behind, 2 kids in college, overwhelmed. No way to dig out as a single parent, as current income (or future potential income) can't support it. Has consulted a BK attorney, and exploring the idea.

I have reviewed all the info and immediately 2 things I noticed, no life insurance, and no retirement. Cashed retirement out a while back to try and get caught up. Obviously if decides to declare, in hindsight that may have been a bad decision - but it is what it is.

So... is it unethical to suggest the purchase of some LI prior to filing? Certainly won't be able to afterwards for some time. Right now the family is totally unprotected, kids could probably not finish college and they would lose their home... if something happened unexpectedly. My gut says its the right thing to do, but obviously there is a slight moral dilemma. I don't believe there is any legal issue in doing so, or am I wrong? I have not talked to prospect about this yet.

What would you do? Thanks

 

[DHK]

Bankruptcy is only an issue because it reflects one's ability to pay for life insurance coverage. As long as they're not suicidal about the whole thing, I'd say go for it, probably with a convertible term. (I'd recommend an annual pay, if at all possible.)

Once the bankruptcy case has opened, you probably won't be able to get good coverage until the BK is discharged.

 

[tlmarketing]

If you can answer the questions truthfully, get the coverage now....you may have an underwriter asking you questions during underwriting about client's credit but can address as you go.

The other thing is that even if he files, you can still get coverage if they are in the middle of a bankruptcy filing...you just need to get an underwriter on board first before submitting application...it happens all the time.

 

[walthamny]

I sell term insurance to couples out of bankruptcy all the time. Most of the time, they are not in the greatest health anyway, I found the bankruptcy to be a small issue for underwriting in almost all cases. The couple is better off getting term coverage in place now because if something happens to one of them in the next 4 months before the bankruptcy case is closed, the bankruptcy filing becomes void and the surviving couple is responsible for all the unsecured debt. If they dont have term insurance, the surviving spouse has to survive on welfare. A small term policy would avoid that.

Placing term insurance before a Chapter 13 case is more complicated as the trustee can object, however, your case looks like a simple chapter 7 case with lots of debt and no assets, getting term insurance before wont effect the bankruptcy filing.

I would recommend against annual pay as the trustee can sometimes check bank statements. They will object to any large unusual expense,

 

[MGBAgency]

The rule of thumb we use are our firm ( MGB Insurance Services LLC ) is that if you have to ask if something is ethical or not... it's probably un-ethical. It's always good to ask questions though.

 

[DayTimer]

The rule of thumb we use are our firm ( MGB Insurance Services LLC ) is that if you have to ask if something is ethical or not... it's probably un-ethical. It's always good to ask questions though.

Well, in this case, I think the OP is doing the right thing by asking. And getting life insurance can never be the wrong thing to do. I have a friend who is a BK attorney and former BK trustee. He has seen all kinds of wacky "expenses" as approved as "necessary," e.g. everything from premium cable TV packages to regular spa visits, season passes to amusement parks, zoo and museum memberships.

I can't imagine finding BK trustee or judge anywhere who would object to a life insurance premium unless the product was being used to shield assets from creditors, e.g. a single premium deferred annuity or single premium whole life policy might, and I repeat might raise questions. But a convertible or ROP term? Highly unlikely to be viewed as a problem.

Of course, the correct answer to the OP's question would be to contact the client's attorney.

 

[MGBAgency]

Well, in this case, I think the OP is doing the right thing by asking. And getting life insurance can never be the wrong thing to do. I have a friend who is a BK attorney and former BK trustee. He has seen all kinds of wacky "expenses" as approved as "necessary," e.g. everything from premium cable TV packages to regular spa visits, season passes to amusement parks, zoo and museum memberships.

I can't imagine finding BK trustee or judge anywhere who would object to a life insurance premium unless the product was being used to shield assets from creditors, e.g. a single premium deferred annuity or single premium whole life policy might, and I repeat might raise questions. But a convertible or ROP term? Highly unlikely to be viewed as a problem.

Of course, the correct answer to the OP's question would be to contact the client's attorney.

It's always good to ask though.

 

[pfg1]

My gut tells me I need to get insurance in place - being unprotected could be disastrous should something happen.
As it stands now, BK is just a thought...not even 100% sure that it will happen yet. But my personal opinion is that its probably the best route, I can't see another way out for this client short of some unexpected major windfall.

For those with experience, what is the process if the client wants to get insurance and plans to go fwd with the BK? Does the attorney have to approve it? Or do they even have to be involved, since the process has not even been started yet? I have no experience with this. And yes, I conduct myself 100% ethically... thus the question. This would be a term sale, there are no assets to shield. I could see that being an ethical issue...this is just a protection issue for the two children - knowing it would be much more difficult (and probably more expensive if we could) to get the insurance afterwards.

Thanks for the input, keep it coming.

 

[djs]

To me, this is a tough call because you are adding to the immediate problem, in case something happens. This is why I don't do well selling life insurance though.

The real question is, forgetting the unimportant bills (those going to bankruptcy), ask if paying the premium will take food off the table. If so, I always put food on the table and a roof over the head as more important then protecting the future. Heck, nothing to protect if you don't have basic necessities now.

Put the college kids to work, file bankruptcy, get on your feet (your client). My guess is if he/she is considering bankruptcy, buying a life policy isn't on their radar and might be a tough sale. It should be. I agree its important, but adding new expenses when you are in financial deep doo-doo isn't usually a good thing, even when its a good idea.

Did they ask you about life insurance or are you thinking about proposing it?

Providing they have a job, getting a $250K term policy isn't going to break the bank usually, but it will add to the stress level for them. Its a high likelihood of a lapse as well.

Dan

 

[pfg1]

To me, this is a tough call because you are adding to the immediate problem, in case something happens. This is why I don't do well selling life insurance though.

The real question is, forgetting the unimportant bills (those going to bankruptcy), ask if paying the premium will take food off the table. If so, I always put food on the table and a roof over the head as more important then protecting the future. Heck, nothing to protect if you don't have basic necessities now.

Put the college kids to work, file bankruptcy, get on your feet (your client). My guess is if he/she is considering bankruptcy, buying a life policy isn't on their radar and might be a tough sale. It should be. I agree its important, but adding new expenses when you are in financial deep doo-doo isn't usually a good thing, even when its a good idea.

Did they ask you about life insurance or are you thinking about proposing it?

Providing they have a job, getting a $250K term policy isn't going to break the bank usually, but it will add to the stress level for them. Its a high likelihood of a lapse as well.

Dan

Its something I noticed....we have not discussed it. Honestly, the debt is most all unsecured so most of it will be gone best I can tell. Premium for the LI assuming std rating would be less than $100/mo. Revolving debt is 10x that at min payment. Certainly wouldn't be taking food off the table after the BK, as there would likely be very few payments left. Decent job, house payment is less than or equal to rent cost. I do plan to have a conversation and find out if its of importance.

My concern is if that conversation goes towards "yes" is there anything I need to do or worry about, as its prior to the BK. Not sure if I need to talk to the attorney or not, never been in this spot...don't want to do something wrong or detrimental for the client.