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At Bankrate, we strive to help you make smarter financial decisions. To help readers understand how insurance affects their finances, we have licensed insurance professionals on staff who have spent a combined 47 years in the auto, home and life insurance industries. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation of how we make money. Our content is backed by LLC, a licensed entity (NPN: 19966249). For more information, please see our Insurance Disclosure. Bankrate logo The Bankrate promise
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Coverage.com, LLC is a licensed insurance producer (NPN: 19966249). Coverage.com services are only available in . Coverage.com may not offer insurance coverage in all states or scenarios. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way. Owing money on outstanding debt can cause a wide range of problems for us while we’re alive, especially if you allow it to snowball to the point where it’s out of control. Whether it’s debt from a mortgage loan that isn’t paid off, personal loans that are in default, a car loan with outstanding payments, or credit card bills that are well overdue, debt can be a serious issue to contend with. But what happens to that debt when we die? This advertising widget is powered by HomeInsurance.com, a licensed insurance producer (NPN: 8781838) and a corporate affiliate of Bankrate. The offers and clickable links that appear on this advertisement are from companies that compensate Homeinsurance.com LLC in different ways. The compensation received and other factors, such as your location, may impact what ads and links appear, and how, where, and in what order they appear. While we seek to provide a wide range of offers, we do not include every product or service that may be available to you as a consumer. We strive to keep our information accurate and up-to-date, but some information may not be current. Your actual offer terms from an advertiser may be different than the offer terms on this widget. All offers may be subject to additional terms and conditions of the advertiser. Compare life insurance providers quickly and easily
See which provider is right for you. The amount of coverage you need depends on many factors, including your age, income, mortgage and other debts and anticipated funeral expenses. Whole life insurance combines life insurance with an investment component. Coverage for life Tax-deferred savings benefit if premiums are paid 3 variations of permanent insurance: whole life, universal life and variable life include investment component Term life insurance is precisely what the name implies: an insurance policy that is good for a specific term of time. Fixed premium over term No savings benefits Outliving policy or policy cancellation results in no money back Find matches Powered by HomeInsurance.com (NPN: 8781838) This advertising widget is powered by HomeInsurance.com, a licensed insurance producer (NPN: 8781838) and a corporate affiliate of Bankrate. HomeInsurance.com LLC services are only available in states where it is licensed and insurance coverage through HomeInsurance.com may not be available in all states. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way. Bankrate Why Lemonade? It's a fresh twist on life insurance: easy, accessible and affordable. See more providers in Choose from insurers in Show More The good news is that most of your debt is passed onto your estate, rather than your heirs, after you’re gone, which means that the money for what you owe is likely to be taken from your estate rather than your loved ones’ wallets. However, the rules for a deceased person’s debt can be complex. For example, not all belongings in an estate can be seized by debt collectors, but if you pass away without a will, it may keep the assets in your estate from being passed down to the beneficiaries. That’s why, if you have debt, it may be smart to fully understand how it will be settled once you are gone. Lightbulb Key takeaways Most debt will be settled by your estate after you die. In many cases, the assets in your estate can be taken to pay off outstanding debt. Federal student loans are among the only types of debt to be commonly forgiven at death. Who is responsible for your debt after you die
If you have children or a surviving spouse, you may be worried about what will become of your debt after you die, which is a legitimate concern. In some situations, the might be responsible for debt left behind by the deceased person. Depending on their relationship to you and your debt, certain individuals could inherit your debt, even if they are not related to you. These individuals are: Spouses: Some states require community property to be put toward debt when a spouse dies. These states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, South Dakota, Tennessee, Texas, Washington and Wisconsin. Alaska & Oklahoma also have elective provisions for communal property if agreement was signed before or during marriage. Joint account holders: If you opened up a bank account with another person, that person would be responsible for any debts associated with that account. Co-signers: If you take out a loan for a business, house or car with another person, he or she would still be responsible for any payments after you pass away. Estate executors (in certain situations): Although executors are generally not personally liable for an estate’s debt, they can be held responsible if they are careless in their management of the estate’s assets or fail to pay the estate’s debts before allocating assets to the beneficiaries. What types of debts can be inherited
As stated, some debts can be inherited, but it depends on a few factors and what kind of debt it is. Medical bills
Each state has different rules on how medical debt is handled after you die. However, medical debt is usually the first debt to be settled by an estate. If you receive Medicaid after turning 55, your state will likely make a claim on your house to recoup any payments you received. Because there are a lot of nuances with medical debt, you should consult an attorney to understand how your debt will be settled when you die. Car loans
A car loan is a type of secured debt, which, in this case, means the loan itself is secured by the actual car. If you are still making car payments when you die, unless someone chooses to continue making payments after your estate has cleared away your debts, the car will be repossessed. Credit card debt
Credit card debt is unsecured debt, meaning you do not need to secure it with your house or car to open one. When you die, it is the responsibility of your estate to take care of any remaining debt. If your estate is not able to do so, the credit card company is out of luck. The only time someone else is responsible for your credit card debt is if they are a joint account holder with you. Do not confuse this with an authorized user. Many parents make their children authorized users on their account, but this is not the same as a joint account holder. A joint account holder opened the account with you and so is deemed to be just as responsible for the debt. This is why a joint account holder is expected to continue payments. Mortgage
As with auto loans, a mortgage is a debt type that is secured by the object it was used to purchase, which is the home itself. When you die, your estate will be used to pay off any remaining balance if you didn’t co-sign the loan. If you leave the home to someone else, and your estate is not able to cover the remaining balance, that person will be responsible for all future payments. If there is a joint owner of the home and that person did not co-sign the mortgage with you, they will need to either sell the home and pay the balance off or continue payments to prevent the home from being foreclosed on. Student loans
Student loans are unsecured debt, which means that if your estate cannot pay off any remaining student loan payments, the lender is out of luck. As with every other type of debt on this list, if you co-signed the loan with someone else then the co-signer will need to take ownership of your debt. If you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, South Dakota, Tennessee, Texas, Washington or Wisconsin), your spouse is responsible for the debt. Federal student loans are generally forgiven upon the borrower’s death. Some private student loans are also forgiven upon the borrower’s death (Sallie Mae and Wells Fargo, for example). Can items be taken to pay debts
Creditors have access to most items listed in your estate, but there are a few things that they do not have access to. Assets that may be used to pay off debt could include: Real estate Vehicles Securities Jewelry Antiques Family heirlooms What cannot be taken to pay off debt includes life insurance benefits, retirement accounts and living or irrevocable trusts. With so many assets that can be seized, it’s important to keep track of what you own and what you still owe. With careful planning, you can protect and preserve much of your estate to be handed down to your beneficiaries. For example, you might use an to protect your assets and potentially lower your estate taxes. Assets that are placed in these trusts no longer belong to you once the trust document is filed. Be aware, though, that the assets placed in these trusts cannot be moved back into your name once the trust is in place. Protecting your heirs with life insurance
In the event of your sudden demise, your life insurance policy could become your family’s biggest source of financial support, especially when everything else is taken away by creditors. Life insurance, much like other payable-on-death benefits, is safe from creditors and the money belongs to your beneficiaries. Even in the absence of sufficient assets in the estate to pay off debt, the life insurance benefit cannot be used for the purpose by creditors. Your beneficiaries, however, can choose to use the money as they wish, and if the benefit is big enough, it may be used to pay off a mortgage or other loans. The money from life insurance also ensures that your family can continue living in the house after your demise and carry on with normal life. When searching for a life insurance policy, it may be helpful to shop around and get quotes from multiple providers. Doing this makes it easier to get a sense of what coverage options are available, what the associated costs may be and what policy might work best for you. It may also be beneficial to get quotes and weigh options from some of to find out which companies offer the most competitive rates and policies. Frequently asked questions
What happens to an estate if a beneficiary dies before you do
A deceased person cannot inherit the assets in your estate. A is to receive the assets in your estate, and this role is key to an estate plan. In general, if your beneficiary passes on before you, any asset that is earmarked for them will be returned to your estate. However, you can typically name successor beneficiaries on assets or accounts, and/or specify beneficiary interests to be handled either per-stirpes or per-capita. It’s important to note that each state typically has estate laws that dictate how a situation such as this is handled. In many states, the estate returns to the grantor if the beneficiary passes first, even with an irrevocable trust in place. In some states, the assets will be passed to the beneficiary’s heirs or beneficiaries instead. That’s why it’s important to update your beneficiary list when necessary and know your state’s laws regarding estates.
Are children responsible for credit card debt
It depends. If the child is a joint account holder, then yes, they are responsible. If they are an authorized user, then no, they are not. If your child is the executor of your estate, then they must use your estate to pay off any remaining debt. Simply because he or she is your child does not make him or her financially responsible for your debt.
Are utility bills paid off after death
As with most debts, if you have a large amount of unpaid utility bills upon your death, then those debts will be paid off by your estate.
What debts are forgiven at death
Your estate settles debts, but some may be forgiven, depending on the circumstances. The most common debt to be forgiven upon passing is student loans. With most debt, like credit cards or loans, the estate is liable and can be leveraged to pay the entirety of owed debt, up to the full value of the estate. Suppose the estate value is less than the debt owed. In that case, the estate will be leveraged in full towards debt and the remaining debt will be discharged. Before making any decisions about your estate or debt, it’s always wise to speak with a qualified professional, such as a certified financial advisor or estate planning attorney. SHARE: Cynthia Widmayer is an insurance contributor for Bankrate and has over two years of experience as a personal finance writer. She covers home, car and life insurance products for Bankrate, The Simple Dollar and Coverage.com among others. Angelica Leicht is an insurance editor on the Bankrate team. She is truly passionate about helping readers make well-informed decisions for their wallets, whether the goal is to find the right comprehensive auto policy or the best life insurance policy for their needs. Kenneth Chavis IV is a senior wealth manager who provides comprehensive financial planning, investment management and tax planning services to business owners, equity compensated executives, engineers, medical doctors and entertainers. Related Articles