After bankruptcy is declared, the bankrupt’s life insurance policy is automatically assigned to the Official Receiver. In such a case, if anything happens to the bankrupt, the Official Receiver takes over the compensation. First and foremost, it covers its costs and pays off creditors. If anything remains, it is passed on to the beneficiaries of the bankrupt’s policy.

According to British regulations, the value of the policy is divided by the number of people entitled to compensation. If there are 2 beneficiaries listed in the policy (meaning 2 individuals entitled to receive compensation), the value of the policy should be divided by 3 (the policy owner plus 2 other individuals). The Official Receiver has the right to a share belonging only to the bankrupt, which is 1/3 of the compensation value.

The Official Receiver will always offer to purchase the rights to the policy for £50. In such a scenario, three options are possible:

• Not purchasing the policy from the Official Receiver and ceasing to pay premiums – in this case, the policy expires.
• Not purchasing the policy from the Official Receiver and continuing to pay premiums – in this case, the Official Receiver will have the right to compensation in the amount of the bankrupt’s share both now and after the bankruptcy proceedings end.
• Purchasing the rights to the policy from the Official Receiver and continuing to pay premiums. In this case, the Official Receiver has the right to compensation only during the bankruptcy proceedings. After this date, the bankrupt will be entitled to receive the entire compensation again.