Life insurance pays the beneficiary of the policy. The beneficiary can use the death benefit proceeds in any way they deem fit. If debt is cumbersome to the family or business, the proceeds can be used to pay debt down or eliminate it all together. The largest debt is generally a home mortgage. Many beneficiaries retire their mortgage from life insurance proceeds.
Term life insurance will pay off debt if the person who is insured passes away. When using Term life insurance to repay loans, many people use an assignment form. This form states that the death benefit of the policy will pay the lender the amount that is owed, then will pay the remainder of the death benefit to the primary beneficiary stated on the policy (e.g. spouse).
Whole or Universal Life insurance that has cash value can also be used to pay off debt while the insured person is still alive, by borrowing from the policy. Many people prefer borrowing from something they own vs borrowing from someone else.
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Whole or Universal Life insurance that has cash value can also be used to pay off debt while the insured person is still alive, by borrowing from the policy. Many people prefer borrowing from something they own vs borrowing from someone else.