My husband and I have massive student loan debt, and one of my greatest financial fears is that we’ll spend years paying off his loans and then something catastrophic will happen that will leave him dead and me stuck with all of my debt at a much lower income. I don’t see any way around it, though, it just makes more sense to prioritize the higher interest rates on his much bigger loans using our combined income. So even though I’m not going to inherit his debt, I’m still at a disadvantage just by nature of him having it. (The disadvantage being the inability to pay my own loans down faster.)
Life insurance. That’s what it’s for, to replace the lost income of the deceased. The trade off, of course, is that you have to pay for it and thus reduce your current assets. It’s a tough situation. Best of luck to you.
Presumably because they had co-signed? Otherwise, are they in any way legally bound to do anything of the sort?
I read something about debt collectors hounding the bereaved to convince them that they were legally and morally obligated to pay off the debt of the dearly departed - despite the law saying otherwise and such harassment being illegal.
Right. The student loan debt is owed by the son’s estate. It has to be paid off before any heirs (like his parents) would get anything. But if the estate has negative value the heirs are not on the hook for that debt. The son beat the system by dying.
If his parents co-signed the loan, then, as you say, they’d be responsible for it.
IANAAccountant, but IIRC the payout from life insurance is directly to the beneficiary, i.e. unless arranged otherwise is not part of the deceased’s estate. This, if he died owing big bucks and no assets, the debt dies with him; but any life insurance payout goes to the person designated in the policy an the creditors fo the deceased have no claim on it… unless the spouse is obligated by state law to pay the other’s debt.
When my husband died his debt died with him - not that he had much. He always carefully structured his businesses so that any debt associated with them would pass away with him.
As I am not qualified to advise anyone on this I’d suggest consulting a professional about the matter.
Also, you have to be careful after your spouse passes away to do NOTHING to acknowledge any of his/her debt as your own. Creditors WILL call and mail letters trying to convince the grieving widow/er that he/she MUST pay up. If you make one payment, or agree to a payment plan, that debt really can become yours.
Really, paying for a half an hour with a lawyer with knowledge of estate law in my state after Mr. Broomstick’s death was money and time well spent, as well as securing the services of an account for a couple other items.
I think that’s pretty much what we settled on. We’re shopping for life insurance now. He’s such a good guy, he was willing to prioritize my loans first. The interest rates are close but he has several smaller debts we can snowball whereas mine are one large loan. I’d rather go the snowball route and increase our cash flow over time.
Currently, The couple is spending all of their resources on paying off the husband’s debt because it is the highest interest. She is afraid that if he dies prematurely, he will not be around to help pay off HER debt (after she spent all her money helping paying off HIS debt while he was alive).
Having the life insurance money go to the wife is exactly the point. When he is not around to help with paying off HER debt, the life insurance money can be used to pay off HER debt. I am not in any way suggesting that the life insurance money would be used to pay off HIS debt.
OK, makes sense. Pay off the biggest loans fastest. Whether life insurance (*term *life) is a good idea is a careful decision depending on cost. Presumably hubby is young and healthy, a decent insurance, essentially against an unforeseen accident more than anything, should be pretty cheap.