1. 12689 POINTS
    Ted Ratliff
    Owner, SFS Associates,
    Life insurance can be used to pay debts, final expenses, pay for college, whatever you want it to cover.  It just depends on why you took out the policy, who the beneficiary is, what the beneficiary wants to do with the money etc.  It generally will not automatically pay the debt unless the credit holder is the named beneficiary.  Life insurance proceeds are protected from probate and creditors unless the estate is the named beneficiary.
    Answered on April 26, 2013
  2. 4330 POINTS
    Jerry Vanderzanden, CLU, ChFC
    Co-Founder, Coastal Financial Partners Group, California
    Individuals and businesses often look to life insurance to provide funds for loan repayment. Many creditors require a collateral assignment of the policy to the creditor "as its interest may appear". Income tax free policy death benefits are first used to repay the outstanding debt and interest due. If a collateral assignment was used, the payments are made directly by the insurance company to the creditor. Any balance of the death benefits will go the beneficiary. 
    Answered on April 26, 2013
  3. 11498 POINTS
    Jason Goldenzweig
    Co-Founder, TermInsuranceBrokers.com, Goldenzweig Financial Group, Las Vegas, Nevada
    Yes. This is one of the most common reasons why people buy life insurance. Many people want to have their mortgages, their kids college tuitions, cars, medical bills, and many other types of debts paid off in the even of his/her death.

    Please note, the proceeds that are paid out from a life insurance policy belong to the beneficiary and they can use the monies however they choose.

    I hope the information is helpful - please feel free to contact me for help and if you have any other questions. Thanks very much.
    Answered on June 18, 2014
  4. 21750 POINTS
    Jim Winkler
    CEO/Owner, Winkler Financial Group, Houston, Texas
    That is a great question! One of the best reasons to buy life insurance is to provide the money needed to pay off debts that would be left behind as a burden to your loved ones. What a blessing it is to have the mortgage paid, credit card debt erased, or funeral expenses paid off, as a result of your financial planning. Thanks for asking!
    Answered on June 18, 2014
  5. 4249 POINTS
    Gary Lane
    President, Lane Independent Agency, Southern California
    Yes, you certainly can have your beneficiary pay all their debts with the proceeds of your life insurance. They can also do whatever they like with the funds, tax free, as your beneficiary. You, if you bought permanent insurance, can even borrow against it tax free, and use the money to pay your own debts. Thank you. GARY LANE.
    Answered on June 18, 2014
  6. 63333 POINTS
    Peggy Mace
    Most of the U.S.
    Life Insurance is not like credit card insurance, or private mortgage insurance, that pays off a debt if the insured person dies. Rather, life insurance pays the beneficiary, who then makes the choice how to use the money. The deceased may have spelled out uses for the life insurance in a will or trust, or they may have just left the money to the beneficiary to use as they see fit.
    Answered on June 19, 2014
  7. 37376 POINTS
    David G. Pipes, CLU®, RICP®
    Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
    Life insurance is often assigned to a lender to secure a debt.  In that event, the insurance company will pay the lender before paying anything to the beneficiary.  Otherwise the beneficiary receives the proceeds and can dispose of the money in any legal manner that they wish.  Life insurance proceeds are used to pay off debts every day.
    Answered on June 23, 2014
  8. 5877 POINTS
    Stan Cox II
    Insurance Adviser - Broker, SC Insurance Services, Oahu, Hawaii
    Does life insurance pay debts? NO! Depending on the kind of policy you have, if you have Whole Life you can use the Cash Value in the policy to pay debts if you want. But if there is a life insurance policy in place at the time of death of the insured, the insurance company will pay the death Benefit to the Beneficiaries. Then the Beneficiaries may use the money for anything they choose. If they choose to pay debts with the money, they may do so.
    Answered on August 28, 2015
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