Show More

Ask an Expert

Can life insurance be used to pay off debts?

Life insurance policies are often taken out in order to provide a pay-out to the policyholders loved ones should they die, leaving them in a financially stable position. But can they be used to pay off debts?

Yes, a life insurance pay-out can be used to pay off debts. In fact, that’s one of the main reasons people take out a life insurance policy: to ensure they won’t leave behind debts for their loved ones to deal with should they die unexpectedly.

When you die, your estate - which includes everything you own, including money, property, and possessions - will be used to pay off any outstanding debts you have. But many of these debts, such as debt on credit cards or loans taken out solely in your name, can’t be inherited.

Additionally, if your life insurance policy is written in a certain way, “in trust” with a named beneficiary, it won’t be counted as part of your estate. That means creditors won’t be able pursue your survivors for the life insurance pay-out to settle your debts.

But there is a major exception to this for most people: mortgages. Most mortgages are taken out by two people and will therefore survive the first person's death.

They’re also a form of secured debt, a loan taken out against the house. That means your surviving partner and your family will have to settle the debt in order to keep the house.

People often take out life insurance policies alongside mortgages (some lenders will even require this) so their family can pay off the balance and own the home outright and their partner doesn’t have the shoulder the mortgage bills on their own.

Decreasing term life insurance policies are ideal for this, with the pay-out aligned with the remaining balance on your mortgage and the policy lapsing when you've paid off the mortgage.

Related guides

Single vs. Joint Life Insurance for Couples

Having open and honest conversations about your finances is crucial in relationships, especially when you share significant financial commitments, such as a mortgage. Another important topic to explore is discussing difficult subjects, such as what would happen if one of you were to die prematurely. This is indeed a tough topic to even think about; however, considering these scenarios in advance would protect your beloved other half.Should the worst happen, it's better to be prepared in advance so that the surviving partner and any dependents will be financially protected. For many couples, a life insurance policy will go a long way towards providing a reassuring safety net.However, could joint life insurance be a better option for you and your partner? There are many factors to consider when choosing joint life insurance or single life insurance, including the cost, how much cover you need, pre-existing medical conditions and changing circumstances.Below, we'll walk through all of these considerations to discover the best life insurance for couples.

What Does a Life Insurance Medical Exam Involve?

Some life insurance companies may require you to undergo a medical examination before providing you with cover. While these may seem intrusive to some people and make them feel uncomfortable, they typically consist of very basic health checks, and unless you're extremely unhealthy, they can help you to get cheaper cover. 

Over-70s Life Insurance

As you get into your 70s, you may - if you haven’t already - start thinking about leaving something behind for your family. This can come in many forms. Over-70s life insurance is any life insurance product that is available to someone over the age of 70. There are different types available such as term life and guaranteed over 50s plans.While you might think that finding insurance at that age will be hard, it isn’t always the case. In fact, many companies specialise in providing it. So, to help you understand if it’s going to work for you, we’ve put together a quick guide on over-70s life insurance.