Do Bad Debts Get Deducted From Life Insurance Premium’s?
Posted December 23, 2009 – 10:22 pm in: structured settlements FAQMy parents want me to take out life insurance policies on them so I won’t be burdened by funeral expenses and such. They both have a lot of debt and I was just wondering if this debt would be paid for by the life insurance premium.
*My parents aren’t legally married although they have been together for over 20 years, so as far as I know the debts wouldn’t be passed on to each other.
Thanks for your help!
6 Comments
You are only responsible for debts that are in your name. If your dad has a car loan in his name only then your mom wouldn’t have to pay it. The catch is that his estate would. So the car would have to be sold to pay off the loan and any of your father’s other property like his house or his bank accounts. If the house is in your mom’s name only then no problem, but if they are both on the note or title, then his ownership of the house would have to stand for the debt.
Sadly, I’m guessing if they have been living together for 20 years both of their names are probably on a lot of this debt.
The cool thing about life insurance is that if you are named as the beneficiary you would get the money and the debtors wouldn’t be able to touch it. You could use it to pay for funeral costs and take care of the living parent and the debtors would just have to go after what is in the estate.
No. Insurance benefits bypass the estate and go directly to the beneficaries named. As long as the policy isn’t a ‘creditor insurance”(the stuff the bank offfers to cover loans and such…avoid those…they are garbage), then the benefit(payout) amount will go to the beneficiary first and the beneficiary decides what to do with the money. If the beneficiary decides to not pay the debts then that is thier choice (although the creditors could come after them legally for it if they want it bad enough). If no beneficiary is named, the money will go directly to the estate, then debts will likely be paid off amongst the first things.
Life insurance PREMIUM, means, how much you pay for life insurance.
I think you’ll be burdened with the cost of the life insurance, if YOU take the policies out. But what I think your asking, is, if you are the beneficiary, can the creditors come after you. The answer to that is no.
Debt is NOT inheritable. So even without life insurance, YOU are not responsible for their debts if they die.
They’ll have a bigger problem if one of them dies – because since they aren’t married, any property legally owned by the one of them, or even jointly, is probably going to be reposessed (house? car? furniture?) to take care of the debts.
It would be taken out of the payout of the life insurance. If your parents take out enough life insurance to cover ALL of their debts, you are NOT responsible. If you are the named beneficiary and they don’t take out enough life insurance, you are out of luck. I know that some places will cover the cost of their bills if they die. I don’t know if your parents have that; I have it on all my credit cards. I work in insurance & depending on how old they are, their insurance could be high or low. And, if they have health problems, it could make their rates go up. Remember to tell them that they need WHOLE life insurance. DO NOT GO WITH TERM. Term is temporary insurance that covers for a SPECIFIED time period; used like auto insurance. It’s there if you die within the specified time; but if you don’t live beyond that term, it doesn’t pay. They should consider contacting an agent concerning this & you might want to be present when they do so. Hope I helped you out! Thanks!
No. “Premiums” are the fees you pay for the insurance. A “payout” or “benefit” is what is paid if the insured party dies. Insurance benefits are paid directly to the named beneficiary(ies). Creditors have no claim to these benefits.
No…the PROCEEDS (that’s the word you’re looking for) will get paid directly to the beneficiary.