“You can’t take it all with you” is a common phrase when it comes to the subject of passing away. However, it leaves out what happens to the things in your life you left behind. Answering “who gets a life insurance payout” is crucial during these times since it’s likely that your loved ones will be dealing with any debt you have—”fun” debt like mortgages.
Like Superman (usually), mortgages will all too often defy death.
How do mortgages get paid and who has to pay for them then? We answer both those questions in detail below.
How Answering Who Gets a Life Insurance Payout Matters for Debt
Before we get into the nitty-gritty of mortgages, there’s a surefire way to help your loved ones deal with any kind of debt when you pass: life insurance. Who gets a life insurance payout is determined by the policyholder (i.e. the person who signs up for it). They will choose who they name as a beneficiary.
Most people choose to name a spouse as their beneficiary, but a beneficiary could be another family member, a close friend, or even a charitable organization.
What Happens to Your Mortgage When You Pass Away?
What Happens to Your Mortgage When You Pass Away?The answer to this is… often nothing. A little anticlimactic we know, but a mortgage is registered against the asset, i.e. the house.
If the person who passed away is the sole owner of the home, then it’s considered an asset that the estate trustee named in the person’s Will is responsible for managing. The home will then be put up for sale and sold. Once it has sold, the mortgage will have to be paid off in order for a discharge of the homeowner’s loan contract to be considered as registered.
However, if the home was owned jointly then very little changes. The surviving person who the home was owned jointly with (typically the spouse) will need to continue paying for the mortgage. They also automatically get ownership of the house. If they choose to sell the home the loan contract debt will have to be repaid in full and the mortgage discharged.
Cases When Your Mortgage Would Be Paid Off Before Your Loved Ones Have to Manage It
Cases When Your Mortgage Would Be Paid Off Before Your Loved Ones Have to Manage ItThere are only two cases when your mortgage would be paid off.
The first has to do with their specific home insurance. If they took out a policy that covered them upon their passing the insurance provider will pay the lender the amount needed to pay off the mortgage in full.
The second is their life insurance. Who gets a life insurance payout matters greatly to the person who now has ownership of a home with a mortgage. In this case (but depending on their policy) the life insurance payout may be enough to cover the cost of the remaining mortgage or at least contribute a significant portion towards it.
Therefore, it’s in your best interest to purchase some kind of life insurance or potentially home insurance. Both can leave your loved ones debt-free, although life insurance can be more beneficial as the payout from a policy can be used for other financial debt, not just a mortgage.
Although mortgages and other debt can add another layer of stress to an already emotional time, there are clear ways to prepare for it. While it would be great if our debt died with us, the reality is that someone is still responsible for paying it off.