Bankruptcy and Insurance in Canada

Going Bankrupt & Insurance: A Detailed Guide

In Canada, navigating the complex landscape of Bankruptcy and Insurance can be challenging. This guide aims to shed light on some of the critical aspects of bankruptcy and how it impacts various insurance policies.

1. Overview of Bankruptcy in Canada

In Canada, bankruptcy is a legal process that provides relief to individuals who are unable to pay their debts. This process is governed by the Bankruptcy and Insolvency Act.

2. The Insurance Act of Ontario

According to the Insurance Act of Ontario, if your insurance policy’s beneficiary is a close relative such as a spouse, child, parent, or grandchild, then the policy’s value is exempt from seizure and doesn’t get affected by bankruptcy.

3. Impact on Various Insurance Policies

Different insurance policies have different rules when it comes to bankruptcy. For instance, if an insurance policy has a cash surrender value and its beneficiary is not a close relative, then this value has to be surrendered in case of bankruptcy.

4. Term Life Insurance Policies

Term life insurance policies, which do not have any value unless the insured individual passes away, are always safe from the bankruptcy process.

5. Exceptions to the Rules

However, there are two exceptions to these rules.


  • If a bankrupt individual receives life insurance proceeds before completing their bankruptcy process, then these proceeds may be seized by the Licensed Insolvency Trustee and used for the benefit of creditors.
  • If your policy’s beneficiary is other than your spouse, child, parent, or grandchild, and your policy has a cash surrender value, then that value must be surrendered to your Trustee if you make an assignment in bankruptcy.

6. Consumer Proposals

Filing a consumer proposal will never impact your insurance policies as no assets or earnings are surrendered when filing a Consumer Proposal. – Steve Welker, Licensed Insolvency Trustee


Consumer proposals are an alternative to bankruptcy in Canada. They allow individuals to make arrangements with their creditors to pay off a portion of their debts over time.

7. Reach Out for Help

If you have questions about bankruptcy and insurance in Canada, it’s always a good idea to reach out to a professional who can provide you with accurate information and help you make the best decisions possible.

8. FAQs

Does bankruptcy affect all types of insurance?

No, bankruptcy does not affect all types of insurance. For example, term life insurance policies are not affected by bankruptcy.

What happens to the cash surrender value of an insurance policy in bankruptcy?

If the beneficiary of the policy is not a close relative and the policy has a cash surrender value, then this value has to be surrendered in case of bankruptcy.

What is a consumer proposal?

A consumer proposal is an alternative to bankruptcy that allows individuals to pay off a portion of their debts over time.

9. Summary

Bankruptcy can have a significant impact on various insurance policies in Canada. However, there are ways to protect your insurance policies and assets, such as by designating a close relative as a beneficiary or filing a consumer proposal. It’s always recommended to get professional advice to understand the best options available to you.

10. Resources

For more information, you can refer to the following resources:


Office of the Superintendent of Bankruptcy Canada

Insurance Act of Ontario

Consumer proposal guide


By understanding the relationship between Bankruptcy and Insurance in Canada, you can make informed decisions and navigate through the complexities with ease.

Remember, it’s always wise to seek professional help when dealing with such critical financial matters.

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