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What happens to your policy when you pass on?
Passing on your debt to your loved ones is something anyone wants to avoid. According to reports, 1 in 3 Australian are unaware of what happens to their debt when they die.
Your life insurance may not be affected by the debt you leave behind, which means that the amount that you were insured for will be paid out to your beneficiaries as agreed.
If you have applied for life insurance through an insurer or broker, they will take you through the proper steps to ensure that you take out a policy that will adequately cover your loved ones and is protected from debt payments that are due.
When your policy won’t be paid out to your beneficiaries
During the application process to secure life insurance, your insurer will ask you to list beneficiaries whom you would like to benefit from your life insurance policy. However, if you have not listed anyone this can be used to pay your mortgage and other debts.
You could also choose to have the policy held in your own name which means that in the event of your death the proceeds of your policy will go to your estate which can then be used to pay off your mortgage and could potentially pay your debt.
Some people also choose to have their life insurance policy paid out in special structures such as a trust find. This is a complex process that needs to be done through professionals using expert advice when it comes to structuring it appropriately to suit your goals.
Beneficiaries obligation when it comes to life insurance
You may have taken out a policy to help your loved ones cover an array of expenses, which will then be paid out to them to use as they see fit. They will most likely have no obligation to pay off your debt, but they could use the policy to take care of your funeral arrangements. If they choose to cover your mortgage or debt they could do so, but they are within their rights not to if the policy is not processed through their estate. This is why it matters that you carefully consider the beneficiary of your policy.
When taking out a life insurance policy it is important that you think of what you would like to cover. If you know that you will have debt that needs to be taken care of, choosing someone who is responsible as one of your beneficiaries and telling them of this set up could possibly ensure that your debt is covered.
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This guide provides general information and does not consider your individual needs, finances or objectives. We do not make any recommendation or suggestion about which product is best for you based on your specific situation and we do not compare all companies in the market, or all products offered by all companies. It’s always important to consider whether professional financial, legal or taxation advice is appropriate for you before choosing or purchasing a financial product.
The content on our website is produced by experts in the field of finance and reviewed as part of our editorial guidelines. We endeavour to keep all information across our site updated with accurate information.
Savvy is partnered with Compare Club Australia Pty Ltd (AFS representative number 001279036) of Alternative Media Pty Ltd (AFS License number 486326) to provide readers with a variety of life insurance policies to compare. Savvy earns a commission from Compare Club each time a customer buys a life insurance policy via our website. We don’t arrange for products to be purchased from these brands directly, as all purchases are conducted via Compare Club.
Savvy does not compare all life insurance policies or providers currently operating in the market. Any advice presented above or on other pages is general in nature and doesn’t consider your personal or business objectives, needs or finances. It’s always important to consider whether advice is suitable for you before purchasing an insurance policy.
For any further information on the variety of insurers compared by Compare Club or how their business works, you can read their Financial Services Guide.
