It is common to hear that life insurance can pay off a mortgage loan. The details are a bit less specific. Life insurance provides a payment at the time of death. This is the death benefit.
The insurance agency pays a specific person you list on the policy these funds. This is the beneficiary. This individual has the ability to use the funds in any way he or she wants. After your death, you have little control over that use. However, there are a few steps to take to clarify your desires.
What Happens After Death?
After your death, your attorney or beneficiary will contact the insurer to inform them of your death. The insurer will process the claim and send the funds owed to the person named on the policy. The insurer cuts a check for the specific amount of the policy. This generally happens quickly. This allows the beneficiary to use the funds as he or she sees fit. Most policies aim to help meet financial goals of family members at the time of death. That's important to help them continue sustaining their living expenses.
However, the beneficiary decides how he or she would like to use the funds. Some may tuck it into a bank account to maintain long-term. Others may use the funds to pay for medical debt (though there is no legal obligation to do that). Some may use the funds to pay off the mortgage. Beneficiaries can essentially use the funds in any way they choose.
What If You Want Something Different?
There are some situations in which you can make a few more rules about how the beneficiary spends the funds. To do this, work with your attorney to establish a trust. A trust is a way of holding the value of the life insurance policy. You can place rules on who accesses the trust. You can also state what the funds within the trust do, including what people can use them for after your death. You may wish for the trust to continue to pay down the mortgage or pay it off in full.
Trusts can be complex. And, they can be very limiting. If you wish to do this, work closely with your attorney and agent. Be sure that your loved ones know about it.
The more information you have about life insurance, the better. You can make it work to meet your specific goals in these situations. Call Mosley Agency, Inc. at 405.224.1000 or 800.274.2288 to talk a life insurance agent today. We can help you establish the life insurance policy to your specifications.
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