if Sears goes broke what about my Sears Life insurance plan?

UPDATED: Oct 26, 2017

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UPDATED: Oct 26, 2017Fact Checked

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I have paid into a Sears Life Insurance plan for more than twenty years, what hppens when Sears declares bankruptsy?

Asked October 26, 2017

1 Answer

In 1997, there was a class action lawsuit regarding Sears life insurance. This lawsuit was settled in 2002. The basis of the lawsuit was when Arthur Martinez, the current Chairman at the time, retroactively took the retiree's promised life insurance and reduced it throughout a ten-year period of time. Due to the settlement results, Sears was unable to reduce the amount of the final life insurance benefits below $5,000.

The insurance premiums are paid on an annual basis by Sears for the retiree life insurance costs. The insurance will remain secure provided Sears still exists. This can change if Sears files a Chapter 7 bankruptcy, and liquidates their assets. This would cause the premium payments paid by Sears to stop resulting in the cancellation of your life insurance.

According to the bankruptcy code, pensions and life insurance are classified as welfare benefits, so they do not receive any protection when bankruptcy is filed. Although the PBGC must secure pensions up to a specific amount, unfortunately there is nothing in this area relating to life insurance. This is despite the fact the Settlement Agreement was approved by the courts in 2002 regarding the litigation for the Sears Retiree Group Life Insurance.

Provided Sears does not file bankruptcy, this settlement agreement has made the stipulation there can be no further acceleration of the schedule for the life insurance reduction Sears started in 1998. Your insurance could not be decreased below $5,000 for the final insurance amount.

Where you will have a problem is according to the stipulations of bankruptcy, the Settlement Agreement is considered an unsecured claim. This means if Sears liquidates, the claim has no priority, and the life insurance you were promised by Sears will be gone.

Answered October 27, 2017 by midtermquote

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