Will Bankruptcy Affect My Insurance Or Insurance Renewal Rates?
For many people who are thinking about filing for bankruptcy, the bulk of their questions aren’t about the bankruptcy itself—their questions mainly relate to life after bankruptcy. What will their credit be like? Will they be able to keep their phone, or buy a car, or keep their job? One question many people may forget to ask is about insurance, and what will happen to existing insurance, and renewal rates, should someone file for bankruptcy.
Cancelling and Renewing Policies
An insurance company cannot cancel your policy automatically, just because you file for bankruptcy. But when your policy is renewed, some insurance companies may want to raise your rates.
Of course, this is very subjective, because insurance rates are generally based on credit. Most people filing for bankruptcy do not have the best credit to begin with, and thus, may already be paying a higher insurance rate. For them, there may not be much of an increase in premiums at all.
Some states do prohibit raising insurance rates, just because of a bankruptcy, but Florida is not one of them (only California, Massachusetts, Hawaii, and Michigan have such restrictions).
Why Rates Increase
Why could your rate increase? The answer lies in simple statistics. Insurance companies base rates and premiums on statistics, and correlating factors that relate to claims. To insurance companies there is some correlation or relationship between people with lower credit scores, and people who make insurance claims.
Usually, car insurance rates are most susceptible to credit score changes. But all insurance will be affected somehow. Some insurers, and some types of insurances, will treat Chapter 7 bankruptcies differently than Chapter 13.
There are Benefits
But there is some good news when it comes to bankruptcy and insurance. For people whose credit scores are already low, and who may already be paying higher premiums, they may find that their score improves quicker after a bankruptcy—much quicker than had they done nothing, and continued to be in debt, with a credit score getting lower every year. That means that you could end up saving money on an insurance policy after bankruptcy much quicker than you would ordinarily.
Additionally, you may be able to time your bankruptcy to mitigate the effects of insurance. If you file for bankruptcy shortly after renewing an insurance policy, an entire year may go by for some kinds of insurance, before you have to renew again. In that time, your credit score may improve, or at least, be where it was when you renewed the policy.
In the end, a slightly higher insurance premium, for a short period of time on certain kinds of insurance, may not be so bad, considering the amount of debt that you are discharging. That’s not to mention the overall savings you will realize when your credit starts to improve shortly after your bankruptcy.