Till debt do you part

By Finbar Garcia

LUTCF,FSS, MFA

Oh, how nice it would be if all our debt were simply wiped away clean upon our death. However, our financial responsibilities do not disappear so easily.

When someone dies owing a debt, the debt does not go away. Generally, the deceased person’s estate is responsible for paying any unpaid debts.

Debt is all part of your financial progress; it’s commonly referred to as your liabilities—money owing.

In accumulating assets, you most likely would incur some debt, be it short-term or long-term debt. Without incurring debt, all your assets would have to be bought and paid for with cash. But in our day-to-day lives, debt is something we need to manage.

With proper financial planning, all your debt should be secured by some type of asset or cash equivalent, the best of all is Life Insurance.

So, how do you determine the type of debts you need to secure before your untimely passing? All your debts should have some type of security attached. As small or simple as it may be, someone will have to pay it off, either using their personal money, selling off your assets, or using any cash that you may have had, providing they can access it.

With professional financial planning, you will need to list all your debts, from the smallest to the biggest and what asset or insurance you have to secure them. Over the years, I’ve noticed that persons tend to look only at the larger debts like their home or motor vehicle to some extent, and other debts may be overlooked in the financial planning process.

These are some of the major debts that you should secure.

• Mortgage
• Credit Card
• Car Loan
• Medical Expenses
• Last Expenses/Probate of Estate
• Family Income
• Hire Purchases and Personal Loans

Let’s look at how best to secure these debts.

Mortgage Debt: With most mortgages, both spouses need to be insured for the value of the mortgage loan, principal amount you borrowed, so in the event of the untimely passing of either one of you, the loan is automatically paid off with the Life Insurance policy. Any residual insurance amount is either paid to the surviving spouse or estate of the deceased.

Credit Card Debt: Most banks may carry some type of insurance with the credit card facilities offered to their customers. This is something you need to know up front, so in the event that there are no protection policies from the bank, you can factor this into your Last Expenses Debt policy.

Car Loan Debt: While the vehicle is usually held as a first security on the loan, if you die while the loan is still owing, then your estate or family will need to either have the bank repossess the vehicle and dispose of it accordingly or they take over the loan and continue payments.

This will require the bank having some credit rating on the person taking over the loan as it’s not an automatic process. Having a life insurance policy to the value and duration of the loan would be the best option.

If the bank offers insurance with the loan, make sure to fully understand the details and cost attached, as this could increase your instalments and may even have interest added to the insurance premiums.

Medical Expenses Debt: Believe it or not, many persons overlook this debt, leaving their family with huge medical expenses to pay-off upon their passing. While we do not have a crystal ball to tell us how we are going to die, being prepared is important. Medical Insurance coverage should be considered.

The two major areas of concern are the Major Medical Coverage Maximum and your Personal Critical Illness policy.

While the medical plan would take care of most of the upfront cost and some other benefits, your critical illness policy would take care of any cost overrun that the medical plan did not cover and some of your monthly expenses if you had planned properly, as your recuperation can be longer than estimated.

Last Expenses/Probate of Estate Debt: This is yet another debt that is under-secured. Firstly, let’s look at the Last Expenses. This would be your funeral expenses and any other cost associated with the burial or cremation of your remains.

Funeral cost today is not cheap and it’s not just the cost of the casket or coffin that was chosen by your family. While it may sound morbid, you should check out some of the funeral homes. This would give you a better idea as to the amount needed.

With regard to Probate of Estate, during your life, you would have acquired many assets and you know you cannot take them with you, so your estate would have to be probated, thereby giving those assets to other persons or family members.

An attorney would need to be hired to oversee the process and all costs attached to the probate of your estate.

Having another life policy to cover these costs should be done and name a beneficiary or the executor of your estate to have access to these funds to properly dispose of your assets.

Family Income Debt: This is your financial responsibility to maintain and sustain the comfortable lifestyle that your family was accustomed to prior to your untimely passing: those monthly expenses other than mortgage and vehicle loans that you should have covered.

The amount of insurance needed will be based on certain factors, as it’s not the same for everyone. Your income is a base guide for calculating the amount of coverage needed.

Hire Purchase/ Personal Loans: Most of these carry some level of insurance protection in the event of your passing during the hire purchase or loan period, the coverage ends when you pay off the loan or hire purchase.

Some of these loans that are being offered as unsecured loans, don’t usually carry insurance protection as they are structured with a higher interest rate and the debt dies with you if you were owing at the time of your passing.

With the Hire Purchase loans, this may also apply, but you need to enquire up front so as not to have any company repossess your furniture. This will only add additional stress to your family.

So, until debt is paid, and death do you part, how secured are you and your family?

Send your questions to myfinancialadvisor2020@gmail.com or call 620-1185.