Life Insurance

Under Colorado law, up to $100,000 of the cash value of a debtor's life insurance policy may be exempt. Cash value in excess $100,000 is not exempt. Also not exempt is any increase in cash value that results from policy contributions made within 48 months before filing a bankruptcy petition. This nonexempt amount includes any part of each premium payment (not the entire premium payment) made within 48 months prepetition that increases cash value plus dividends or increases due to such payments. Cash value increases or dividends attributable to contributions made more than 48 months prepetition can be exempt.

Calculating what is exempt versus nonexempt can be difficult without itemized information from the insurance company. A bankruptcy debtor must get from the insurer at least the following information: (1) cash value as of the date that the bankruptcy petition is filed with the court, (2) cash value 48 months before filing, and (3) a breakdown of the components of each premium payment (a significant amount does not increase cash surrender value) made 48 months prepetition as well as dividend increases.

With some quick math, one can estimate roughly how much of the dividends accrued within 48 months should be allocated between the exempt balance existing 4 years ago and the nonexempt contributions. The calculation should provide a good estimate of the non-exempt amount (not the entire cash value increase during the last 4 years) that is property of the bankruptcy estate and subject to turn over to the bankruptcy trustee, if requested.

See § 13-54-102(1)(l)(A)(I), Colorado Revised Statutes.