Apr

18

Dead People Can’t Pay Their Loans

April 18, 2008 |

Don’t Buy Debt Life Insurance Unless You Really Need It

Young people are often enticed to take a Life Insurance Policy on their Auto Loans, or even Credit Card Debt by very astute salesguys. The salesperson tells the potential victim that if they die, their estate will not have to pay for the debt. How nice of them!

The reality is that no-one had to pay for the loan – the estate does not inherits debts.  Before your heirs can take money from your estate, your creditors have to be paid — if there is enough money in your estate.  But if you owe more than you have, you will just leave nothing - nothing to your heirs, and almost nothing to your creditors.  Whatever is not covered by the individual’s assets at the time of death is written off by the bank! 

Of course, the bank is very happy to make sure that you have no excuses to pay off your debt, even if you die. But it doesn’t benefit you at all.

What is worse: the cost of debt related life insurance is usually higher than Term-Life Insurance for comparable amounts. Even if you have a wife and ten kids and want to be sure they can pay off the house, the Hummer, the Volvo, and the Mini-Van, you are better off getting term insurance rather than four individual debt insurance policies.

My advice: If you have kids or other dependents, buy an adequate ammount of Term Life Insurance.  If you want to make sure that the bank will not take the house away — buy enough Term Life Insurance to cover it — along with any other debts you want your family to pay off.  The savings you will get from having only one big policy vs. many debt related life insurance policies is significant.  Just save those few bucks that you would pay in debt related life insurance and put them into your IRA. By the time you are about to die you would have paid the car, the house, and will have a nice nest egg that you can either use or leave behind to your heirs.

(Originally published on the Anes Weblog, and later improved on Money And Investing).


Comments

4 Comments so far

  1. » Dead People Can’t Pay Their Loans Credit Card on Credit Speak: Find Info, News and More on Credit Card on April 18, 2008 7:37 am

    [...] Dead People Can’t Pay Their Loans Need It Young people are often enticed to take a Life Insurance Policy on their Auto Loans, or even Credit Card Debt by very astute salesguys. [...]

  2. Dead People Can’t Pay Their Loans on April 18, 2008 8:22 am

    [...] Dead People Can’t Pay Their Loans Need It Young people are often enticed to take a Life Insurance Policy on their Auto Loans, or even Credit Card Debt by very astute salesguys. [...]

  3. Credit Card Debt On Credit Speak » Dead People Can’t Pay Their Loans on April 18, 2008 9:15 am

    [...] Dead People Can’t Pay Their Loans Need It Young people are often enticed to take a Life Insurance Policy on their Auto Loans, or even Credit Card Debt by very astute salesguys. [...]

  4. Shawn Cornett on April 24, 2008 6:06 pm

    Great point uncovering a shady insurance sales tacktic! I’m curious if you have ever heard of or what you know/think about investing in Life Settlement Insurance policies. Obviously there are some crooks out there on this too but it was the credibility of Warren Buffett that got me really going with it. I’m now very invested and even marketing the concept, primarily because I can’t find anything better and think that in the coming market people are going to be looking for safer ways to get a good return. Your thoughts?…

Name (required)

Email (required)

Website

Speak your mind

 

Recomended Links:

* Your Link Here