Will My Family Have to Pay My Debts From My Life Insurance After My Death? – John

“Dear Steve,

I have $152,000 in student loan principal, down from $163,000 after 6 years of payment. $77,000 are at a fixed rate of 2.625%. $6000 are at 5% fixed, and $69,000 are at a variable rate, which currently averages 2.5%.

I also have $22,000 in credit card debt, which is at fixed rates of 4.99%, 3.99%, and 2.99%. The average rate on the 3 cards is around 3.75%.

My monthly payments are interest only on the student loans at $410 per month and my credit card issuers want me to pay 2% of balance plus interest, so the payments are about $470 per month.

I rent for $600 per month.

My car is 22 years old.

My income is $44,000 per year, working one FT and one PT job.

Will my family have to pay any of my debt from the proceeds of my life insurance after my death?


Dear John,

Upon your demise creditors can only look to your estate, your part of assets for repayment of debt. The life insurance proceeds are a benefit to the beneficiary, just like a 401(k) is, so it is not part of your estate.

It also depends if the debt is a joint obligation with a surviving family member or spouse. That agreement lives past your death.

In the community property states of Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin, the liability of debt after death is more complicated. These are community property states. If you live in one of these states you should speak to a lawyer licensed in your state for specific advice.


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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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