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What Happens to Your Personal Debts After Death?

Funeral flowers on a tomb

By Byron Udell | May 22, 2017

The average American is carrying a personal level debt load of nearly $62,000. What do you think happens to YOUR personal debts after death? Good question.

Did you know that most Americans die in the red? In other words, most people who leave this world exit it with a pretty hefty heap of debt. According to Credit.com, Americans carry a personal debt load of $61,554. In most cases, mortgage debt makes up most of the deficit. Without home loans, the average personal debt balance is $12,875. The remaining debt consists of auto loans, student loans, and outstanding credit card balances.

So what happens to that debt when I die?

When you die, your debt can still live on. While some debts might be eligible for cancellation, (such as federal student loans, but private student loans are probably not going to be forgiven), in many cases, the personal debt of the deceased is passed on to the estate. The creditors get their first bite at the asset apple, and whatever is left typically goes to the surviving beneficiaries.

But what if my estate itself doesn’t cover all of my debts?

If your estate isn’t big enough to pay off all of the outstanding debt, the creditors will most likely be forced to take the financial loss. They can’t personally come after family members for the remaining debt.

In theory.

But, let’s say, your only tangible asset is your home. The very home your family is still living in. Since your home is part of your estate, your family may have to sell it to pay off the debt. This outcome could be heartbreaking for your family.

What can I do to help prevent leaving a mountain of debt behind after I’m gone?

One way to avoid leaving your loved ones with outstanding indebtedness is to buy life insurance. Owning a life policy can help your family remain on their feet financially after you’ve passed on. The beauty of life insurance is that it turns pennies into dollars when your loved ones need it the most.

Whether you purchase a term life insurance or a Permanent Life policy, you would be providing your family with the financial lifeline they need to help them stay in their home and pay off some (or all) of the outstanding debts you’ve left behind.

If you’re young and healthy, life insurance is fairly inexpensive. For example, a healthy 35-year old male can get $500,000 of 20-year level term life insurance…for less than a dollar a day! And the death benefit is delivered to your family – income tax-free.

So if you don’t want to die in the red…think green. It’s the “green” that can keep your family in their home and debt-free – thanks to life insurance.

For more information on life insurance, talk to AccuQuote. We can provide quality, competitive life insurance quotes from the top-rated, brand-name insurance companies you know and trust.

Nifty Life Insurance Calculator

Our Life Insurance Calculator can help you get a rough idea of how much coverage you’ll need to make sure your family is okay financially when you die.

  • Annual income before tax: $

    Annual income is an important factor in determining your needs, but it’s not the only one. When you die, your life insurance is like your final paycheck.

  • % of income needed by dependents:  %

    Because you’ll be gone, presumably they won’t need as much as you’re currently earning.  Typically, 80% of your current income is a good place to start.

  • Your Age: years

    The younger you are, the more years of your income your family stands to lose when you die.

  • Number of years benefits are needed:  

    If you died tomorrow, how many years of income do you want to provide for your family?

  • Annual inflation rate (estimate):  %

    Because of inflation, in order to maintain your family’s current standard of living, you’ll need to plan for increases in their annual income to keep pace.  Historically, inflation has averaged between 2% and 4%.

  • Annual interest rate (estimate):  %

    This is an assumption as to how much you believe your spouse will be able to earn on the death benefit proceeds. We have found that most surviving spouses are usually very conservative in how they invest the death benefit. The most common thing we see is that the money gets deposited into a bank account. You know your spouse better than anyone. Pick a number that you feel your spouse will be able to comfortably earn on the proceeds.

  • Based on the information you provided, you need about

    of life insurance to replace your income for the next years.

So what’s next? Call us at 877-794-9817 and let’s chat about the types of coverage that may make the most sense for you.

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