Everyone would love to leave behind a hefty inheritance for their loved ones, but the reality is that many people will leave behind some hefty debt instead.
American household debt—including mortgages, credit cards, student loans and auto loans—is $11.65 trillion, according to the Federal Reserve Bank of New York.
When your clients die, then, where does all of that debt go? A recent article from Credit.com and Yahoo! Finance broke down the possibilities:
- Credit card debt: The debtor’s spouse may inherit credit card debt if he or she was a joint account holder or lives in a community property state. Often, credit card debt may have to be paid out of any assets left in the client’s estate.
- Mortgage debt: The debtor’s spouse and other heirs will likely have to continue paying the mortgage in order to keep the home.
- Student loans: Federal loans can be canceled upon the death of the borrower, as can Parent PLUS loans. Private loans aren’t always canceled, though, and may leave the co-signer on the hook. Some lenders will even accelerate the payment upon the borrower’s death, requiring the balance to be repaid immediately.
- Auto loans: If there’s a co-signer on the vehicle loan, that person will be responsible for the balance, as will spouses who live in community property states. The vehicle may be returned to the lender, so they can sell it. If the price they get is less than what is owed, though, heirs may have to pay the remaining balance.
Luckily, it’s easy for clients to avoid saddling loved ones with a financial burden when they die. The solution? Adequate life insurance. An indexed universal life (IUL) insurance policy, in an amount sufficient to cover a client’s debts, will create a death benefit that can save family members from unexpected debt loads.
Imeriti has resources and training tools to help you learn about—and sell—IUL. For more information, email [email protected] or call 800.921.3100.