Debts you leave behind
What happens to my loan if I die?
Everything you leave when you die is called your estate. This is the value of everything you own, minus everything you owe.
Whatever remains goes to your beneficiaries (people who receive money or assets when you die). If you have debts, they reduce the size of your estate, so your beneficiaries receive less. If your debts amount to more than the value of everything you own, there will be nothing left for your beneficiaries. But these debts are cancelled and your beneficiaries won’t have to pay them.
There are some exceptions to the situation described above:
- Student loans These are automatically cancelled on death and do not reduce the size of your estate.
- Borrowing covered by life insurance If a loan is secured against your home, the home would normally be sold to raise the money to repay the loan. But if you had taken out life insurance along with the loan, the life policy will pay it off instead without any sale of the home. Similarly, if you had taken out life insurance with any other loan, the loan will be automatically repaid.
- Joint borrowing If you took out a loan jointly with someone else, you’re both responsible for the whole loan. So, in the event of your death, your joint borrower must take over making the full repayments (unless life cover has repaid the loan as described above).