Yes, Life Insurance can go to pay debts. The purpose of Life Insurance is to relieve financial stress which your heirs or beneficiaries will endure. Life Insurance provides the opportunity to help those you care about or to protect you business from undue financial expenses or replacement of income.
When you decide to get Life Insurance, it is important to figure out how much you want to leave. One way to think about this for loved ones is to decide how much do you want them to have annually or monthly and for how long? Does there need to be some immediate monies to pay for final expenses?
President, Lane Independent Agency, Southern California
When a beneficiary is paid under a life insurance policy, the proceeds paid under that policy belong to that beneficiary. The beneficiary is then free to use that money as they see fit. It can pay debts, buy a house, pay for college loans, or their own retirement. It is also tax free under current laws. Thank you. GARY LANE
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
Life insurance proceeds don’t have anything to do with the estate of the policyholder. They are the tax free benefit paid to the beneficiary. The beneficiary is not obliged in any way to satisfy the creditors of the deceased. There well might be reasons that doing so is a benefit to the beneficiary but there isn’t an obligation to do so. For example the beneficiary may decide to retire the mortgage and thereby own the home free and clear; however, the beneficiary is not required to do that.
Agency Owner, The Thomas G Sheehan Agency, 27 Glen Road Sandy Hook, CT 06482
Life insurance proceeds paid to your named beneficiary are not attachable by creditors nor are they taxable. Your beneficiary is under no real obligation to use the proceeds to pay any of your debts, however, generally speaking, Life Insurance planning and the resulting policy protection is put into place to solve problems like this at the time of death. As an example, if you have a $250,000 mortgage, and you want your family to be able to stay in your home without that mortgage, then the proceeds can and rightfully should be used to pay off the loan, as that was your intent for your family's security.
.JPG){kind=avatar}
When you decide to get Life Insurance, it is important to figure out how much you want to leave. One way to think about this for loved ones is to decide how much do you want them to have annually or monthly and for how long? Does there need to be some immediate monies to pay for final expenses?
This is a good exercise to get you started.