One of the most frequently asked questions we get here at Life Insurance Blog is whether or not credit card companies can get life insurance money after a policyholder dies. The short answer is no. The life insurance company pays the death benefit to the named beneficiary on the policy, regardless of who that is. So, if your husband were to die and you are the named beneficiary on his life insurance policy, the money would go to you – not his creditors. Of course, things are never quite that simple. In this blog post, we will explore the ins and outs of this question in more detail, so that you can be prepared for any eventuality. Read on to learn more.
What is life insurance?
When a person dies, their life insurance policy pays out a death benefit to their beneficiaries. The death benefit is the amount of money that the life insurance policyholder has chosen to have paid out upon their death. If the policyholder has named their spouse as their primary beneficiary, then the death benefit will typically be paid out to them.
However, if the policyholder dies without naming a beneficiary, or if the named beneficiary predeceases them, then the death benefit will be paid out to their estate. This means that it will become part of their probate estate and will be subject to any debts and taxes that are owed.
If the deceased had credit card debt, then their creditors may try to collect on that debt by claims against the death benefit. In most cases, however, life insurance companies will not pay outdeath benefits to creditors. They will only pay out death benefits to named beneficiaries or to the estate of the deceased.
What happens to life insurance money when the policyholder dies?
When the policyholder dies, the life insurance company will pay out the death benefit to the named beneficiaries. The death benefit is the amount of money that the policyholder has chosen to have paid out in the event of their death. The beneficiaries can use this money for any purpose, including paying off debts, such as credit card debts.
Can credit card companies get life insurance money after the policyholder dies?
When a credit card holder dies, their outstanding balance does not disappear. If the deceased had a life insurance policy with a face value large enough to cover the balance, the credit card company may try to collect from the policy. In order for the company to be successful, a few things must happen.
First, the terms of the life insurance policy must name the credit card company as a beneficiary. If this is not the case, the company has no legal claim to the money. Second, even if the policy does name the credit card company as a beneficiary, state law may dictate that other creditors have priority over life insurance proceeds. In that case, the family members or other beneficiaries named in the policy would receive payment first, and the credit card company would only be able to collect if there were funds remaining after all other debts were paid.
Finally, it’s important to note that many life insurance policies have provisions that void coverage if the policyholder dies as a result of suicide within a certain time period after taking out the policy (usually two years). So even if all of the above conditions are met and the credit card company is listed as a beneficiary, they may still not be able to collect if it can be proven that the death was self-inflicted.
How can you protect your life insurance policy from creditors?
When you purchase a life insurance policy, you have the option to name a beneficiary. This is the person who will receive the death benefit from your policy when you die. You can also name an irrevocable trust as the beneficiary of your life insurance policy.
An irrevocable trust is a legal entity that can own assets and property. The trustee of an irrevocable trust is responsible for managing the trust and distributing the assets according to the terms of the trust agreement.
One of the benefits of naming an irrevocable trust as the beneficiary of your life insurance policy is that the death benefit will be protected from creditors. If you name your spouse as the primary beneficiary of your life insurance policy and he or she dies, any creditors that he or she owes money to could potentially make a claim against the death benefit.
If you have concerns about creditors making a claim against your life insurance policy, talk to your financial advisor about setting up an irrevocable trust.
Conclusion
It’s a sad reality that credit card companies can sometimes get life insurance money after a husband dies. While this may seem unfair, it’s important to remember that the life insurance company is just trying to recoup their losses. If you’re in this situation, it’s important to work with the life insurance company to try and come to an agreement that everyone can be happy with.
