Debt after death

What happens to debt after death?

If you have a lot of debt, you can buy forgiveness. You just have to die with life insurance.

That’s the uplifting takeaway from life insurance company Securian Financial Group’s study out today. Securian’s study, called “Debt: The inheritance no one wants,” involved asking more than 1,000 people about their debts and what they thought would happen if they died while owing money.

“Our survey shows that consumers have significant unmet debt protection needs and are likely to be receptive to product offers,” Securian VP Kristi Nelson says in a press release.  “Banks are in a great position to offer the products that meet those needs.”

Of course, it’s intended for businesses to read and will be presented at a banking conference next week. But there are some interesting takeaways for consumers, if you get past the morbidity of it…

  • 56 percent say they have more debt than savings and assets
  • 44 percent of people with debt owe more than $25,000, and 20 percent owe more than $100,000
  • 69 percent have never thought about debt after death
  • When asked how they would feel about leaving survivors with debt, one said: “I’m sorry but I will be dead and they can figure it out.” Another said, “My ex can totally afford it.”
  • 24 percent have co-signed a loan, and nearly half of those did it for their spouse.

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Most debts die with the borrower

The company is gathering intel to sell more life insurance and debt protection, but they admit debt often does die with the debtor in a section called “Debt doesn’t always die with the borrower.” (Naturally, we’re flipping the script.) Here’s what they say:

If there is no cosigner, the lender will seek to collect the debt from the estate, which could result in the sale of assets including homes, cars and other property. If a spouse, child, parent or anyone else cosigned a loan with the deceased, the cosigners are liable for the debt. A spouse is responsible in a community property state even if he or she did not cosign the loan.

From this we know that cosigners are the first place lenders look to get money back. After that, it’s your “estate,” which is just a fancy term for all your stuff and everything you owe. Your stuff can be sold off to cover those debts, and whatever’s left can be distributed according to your will. If there’s not enough, creditors are out of luck.

The exception Securian points out are those weird community property states — 10 states where spouses can be responsible for a debt even if they didn’t co-sign the loan. Those are Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin.

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