What happens to debts when you die
Your executors use your estate to repay debts before anything passes to your family. If there is not enough money, unsecured debts in your sole name, such as a credit card, are usually written off. Your relatives do not inherit them personally.
But they could inherit less, because the debts come out first. A house your family hoped to keep might need to be sold to repay what you owe.
Funeral costs also come out of your estate. If your debts use up most of what you leave, your family may struggle to pay for a funeral. A small policy in trust can ring-fence money for it.
Debts that do pass on
Joint debts are the main concern. A joint loan, joint credit card or joint mortgage remains payable by the other borrower in full. If your partner relies on your income to meet the payments, they could struggle.
Guaranteed loans also pass on. If a parent guaranteed your loan, the lender can ask them to repay it. Secured lenders can ask for the property to be sold.
Buy now, pay later accounts and store cards in your sole name are treated like other unsecured debts. They are repaid from your estate if possible.
- Joint mortgages and joint loans
- Joint credit cards and overdrafts
- Loans a parent or friend guaranteed for you
- Car finance in joint names
Sizing cover around the debts
List each debt, who owes it and when it ends. Decreasing cover can follow a reducing loan. Level cover suits a debt that stays the same or cover you want for living costs too.
Some people take a single policy for the biggest debt and a smaller one for the rest. Others pay down unsecured debts first and keep cover for the mortgage.
Do not forget your partner's income. If a joint loan was taken on both salaries, the survivor would need to meet the full payment on one. Cover can clear the loan or provide an income while they adjust.
Applying when money is tight
If you are working through a debt plan, keep premiums affordable. A missed payment can mean the policy lapses and you lose cover. Shorter terms or decreasing cover can bring the cost down.
Being in debt does not stop you applying for life insurance. Insurers mainly look at your health, age and lifestyle. If you are struggling with debt, free advice is available from UK debt charities.
If you are in an IVA or other formal debt arrangement, check the terms. Some arrangements limit new spending, and an adviser may need to agree to a new direct debit.
How Hi Tomorrow helps people with debts
We go through what you owe, who would be affected and what you can afford. Then we recommend cover from our panel that protects the people who would be left with a debt.
We will not suggest more cover than you can sustain, because a lapsed policy protects nobody.
If you are planning to clear some debts soon, we can suggest a shorter or smaller policy now with the option to review it later.