We all have the best intentions to provide the best that we can for our families. The highest priorities for most people include a nice home, travel and holidays, as well as good school for their children. However, providing your family with a quality lifestyle comes at a high premium. Unfortunately, for the majority of people this is just not feasible. As such, you most likely have a mortgage to cover your home, a car loan, and credit cards to meet some of your daily expenses. It is for this reason that you may be wondering what would happen to this debt in the event of your death. After all, you would not want to burden your family with debt if you were to pass away. So, what happens to your debt when you die? In addition, what is the best way to protect your family from debt when you die? Keep reading to find out how life insurance protects your family against debt.
What happens to debt when you die?
In most cases, your family will not necessarily inherit your debt when you die. This is because your debts are passed on to your estate when you pass away. Your estate will be used to pay off your debts and the balance will go to your heirs. However, there are instances where the estate is not sufficient to pay off all the debts. Under these circumstances, your estate will pay off whatever portion of your debts it can. Fortunately, your heir will not be liable for any outstanding debt that your estate is not able to cover.
When other people are responsible for your debt
In as much as your family cannot inherit your debt when you pass away, there are some exceptions to this. For example, if someone co-signs a loan with you then they can be held liable for any outstanding debts related to this loan. Moreover, if you have a joint credit card with your spouse then your spouse will be held liable for any outstanding credit card debt.
How life insurance can protect your heirs from debt
Life insurance is one way to protect your family and heirs from inheriting debt from an outstanding mortgage or other loan. In essence, when you take out mortgage life insurance or another type of credit life insurance, you are ensuring that there will be money to pay off your debt when you die. Keep in mind that with these forms of insurance, the amount that would be paid out if you were to die decreases as your mortgage or loan balance creases. Moreover, another major disadvantage of mortgage life insurance is that the beneficiary is the lender and not your family. For this reason, use term life insurance to protect your family against your debts.
Term life insurance
Why is term insurance the best way to protect your heirs from debt? Term life insurance pays out a death benefit to your beneficiary if you die during the term of your policy. Depending on your needs your term life policy can be ten years or more. This means that you can select a coverage amount and policy length that matches the amount of your debt. In addition, the payout amount for term life insurance does not decrease over time. Moreover, you can designate a beneficiary of your choice. Your beneficiary can use the payout amount in any way they see fit.