It is not uncommon for people to wonder what happens to the personal loan when the person dies. There are those who are afraid of having to pay the family member’s debts or even think they may be negated if they do not have the money. There are also those who believe that the debt disappears with the death of the borrower. Today we will answer the questions on this topic.
What happens to the loan when the person dies?
Let’s talk about the myths and truths about debts after the debtor’s death?
When the person dies the debts are paid off.
Myth The amount of the debts will be paid by the assets left by the deceased to his heirs and the repayment of the debts can occur even through a lender insurance, made for this purpose. This means that when a person dies the debt does not die together.
When the person dies the debts go to the heirs.
Myth and truth. The heirs have no obligation to pay off the debt left by the deceased, but the debts will be passed on to him within the inheritance received. This means that if a person had 2 heirs, an equity of $ 10,000 and a debt of $ 10,000, uninsured, the debt will be fully discounted from the equity that would be received.
But if he has two heirs, an estate of $ 50,000 and a debt of $ 100,000, the $ 50,000 that would be split between the heirs will be used to pay the open debt. The remainder will be settled as a loss to the institution. This means that, in a way, the heirs will participate in the repayment of the debt, but only with the equity to which they would be entitled.
Credit Life Insurance
One of the things we mentioned above was credit life insurance and we will explain what it is and when it is used.
Credit life insurance is a guarantee of debt repayment in the event of the insured’s death, permanent disability or involuntary unemployment. The first beneficiary of this insurance, up to the debt limit, is the creditor institution. Still, it works as a guarantee for the borrower, who will have peace of mind in case of unforeseen events.
If the insured amount exceeds the debt, the difference will be paid to the insured, if alive, or to his heirs.
What is it for
This insurance can be used for both debt settlement and settlement of certain installments in specific cases. It is very important to observe the coverage described in the contract before signing.
The amount of credit life insurance varies according to the asset, term of financing, age of the insured and policy of the insurer.
When is the right to insurance lost?
If the insured person joins an incentive dismissal program, for example, or simply resigns, he will not be entitled to insurance coverage. In addition, if the physical inability to perform his or her activities is linked to a pre-existing illness, there will be no payment of the installments provided for in the insurance contract.