Life insurance policies pay out a sum of money to the beneficiary in the event of your death from causes other than suicide. If you leave behind credit card debt when you die, your estate must pay the debt, but your life insurance policy is not usually affected.
Beneficiary Rule
In most cases, the executor of an estate must pay back debts, including credit card accounts, using the estate's funds before he can distribute inheritances to the deceased person's heirs. However, if an heir was named as the beneficiary of the decedent's life insurance policy, that heir must receive life insurance funds regardless of the debts the estate owes. The policy must name a particular heir as the beneficiary; if the policy simply lists the "estate" as beneficiary, the funds must be used to pay off debts.
Borrowing Against Life Insurance
Most life insurance policies allow you to borrow against them. You can then get cash to pay your credit card debts or other expenses. However, you must repay the funds plus any interest your underwriter charges before your death. If you owe money to the life insurance company when you die, the balance and interest is deducted from any benefit that the policy would ordinarily pay your beneficiary.
Responsibility for Debt
After your death, your heirs are not responsible for your credit card debt. If your estate cannot pay back your debt using the assets you have left behind, the credit card company must write off the remaining balance. It is against the law for a credit card company to attempt to collect this debt from your heirs, including the heir who receives the benefit from your life insurance policy.
Spousal Exception
If you and your spouse have a joint credit card account, the responsibility for the credit card debt passes to him after your death. Thus, if your spouse refuses to pay the debt, the creditor may take collection action against him, which in some cases may include seizing monthly life insurance payments until the debt is paid off.
0 comments:
Post a Comment