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Insurance 101

What kind of debts does life insurance cover?

Insurance 101

What kind of debts does life insurance cover?

From a school loan to a summer home, learn what life insurance does and doesn’t cover.

There’s a Persian proverb that says, “There are four things every person has more of than they know: sins, debt, years, and foes.” While having a lot of years to live might be a good thing, having a lot of debt certainly isn’t what anyone has in mind as a future goal. Unfortunately, it’s a reality for most people, especially as they acquire property, a college education, money for a rainy day, and shoes for every season. While donning this summer’s newest strappy sandals might not break the bank, owning a home or paying for school can really hike up debt.
While there are a lot of factors to consider that might sound negative, the good news is that having a life insurance plan is good financial protection for your loved one’s future and can help cover the larger responsibilities. But what exactly does life insurance cover? (And what doesn’t it cover, for that matter?) Let’s explore below.

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  1. Five things life insurance typically covers
  2. What won’t life insurance cover
  3. Conclusion

Five things life insurance typically covers

1. Mortgage payments

When you buy your dream house you want to make sure that you keep up with the mortgage, even after death. Your family will incur those payments after you pass, and you best believe the bank will be coming for that money. Life insurance plan death benefits have a lump sum that either goes directly to your beneficiary to pay the mortgage debt or to the bank so there’s no middle-person having to make payments.

2. Funeral expenses

You’d think upon your death you’d never have to worry about money again. Technically speaking, you don’t since you’ll be…well, you know. But, funerals can rack up a big bill. From the casket, to the funeral home, to the burial, these expenses can be an enormous source of stress for an already grieving family to then have to think about how they’re going to pay for your final resting place.

3. Credit card debt

Just like those pesky bankers looking for you to pay the mortgage debt, credit card companies will also try to collect payments. If there’s no life insurance money to pay off the bill, the money can be taken from your estate and your assets will be used to pay the funds owed. You definitely don’t want debt collectors harassing your family at all hours of the day.

4. School tuition/loans

In the event of your untimely death, you want to make your children continue to get an education. Certain schools, specifically colleges and universities, have high tuition costs and even higher student loan debt. In fact, in the U.S., 44 million students have an accrued $1.6 trillion in college debt. Yes, that is trillions with a T. Student loans and debt can become an insurmountable issue, especially for a young person going into the workforce, upon graduation. A life insurance plan can help cover some, if not all, of this high expense.

5. Child care

Speaking of children, a life insurance plan can also cover care for your kids. If you pass away, you want to make sure your children have the best life possible, especially if you were the sole or partnered caretaker. If the other parent needs help, the death benefit could help pay for daycare or in-home help. If the child or children are differently-abled it can cover those specific care and medical expenses too.

What won’t life insurance cover

While we just scratched the surface of the many things life insurance can cover, there are considerations to be had about the things it doesn’t.

1. Expired plans

Life insurance coverage will only stay active if you make on-time monthly payments. If you missed paying your bill, your coverage will be deactivated and your benefits will not be paid to your loved ones.

2. Fraud

Liar, liar pants on fire might not be in the official documents. But, if you lie on your application, your insurance can cancel your coverage while you’re still alive and/or reduce/deny the life insurance payout upon your death.

3. Criminal activity

While it might be funny to watch a movie where a scheming spouse wants to collect the life insurance payout of their deceased partner, in reality, this type of crime will completely cancel your plan and no one will receive the money. That also goes if you died while committing a crime.


Buying insurance is a great way to protect your family and your assets, so it’s important to always be as meticulous as possible. From being aware of the big expenses you don’t want to burden your loved ones with, to also understanding the things it’ll not cover. Make sure to always pay your bill on time, keep clear of criminal activity and maybe don’t buy 10 pairs of shoes because they’re on sale.

The opinions we expressed in this post are for general informational purposes only and are not intended to provide specific advice or recommendations.