Unfortunately, Here's What Happens When Someone Dies Without Life Insurance

Life insurance is particularly important for those leaving behind debt.

Approximately 1 in 4 Americans have no life insurance coverage. There's certainly no judgment here. After all, for a household living paycheck to paycheck, life insurance may feel like a luxury they simply cannot afford. Some folks may also assume they don't need life insurance because they don't have anyone in particular to name as a beneficiary.

This begs a question, though: What happens when someone dies without life insurance?

Who covers burial costs?

Depending on the state in which a person is buried, the average 2023 funeral costs from $6,700 to $15,000. Cremation with a service and viewing averages just shy of $7,000. Unless that person leaves funds to cover burial or cremation expenses, their family or friends will have to come up with the money.

Let's say those left behind refuse to pay for a funeral. Arrangements must still be made to deal with the body. It's up to the executor of the decedent's estate to determine what those arrangements will be. If there is no executor named and no one steps up to take on the role of executor, the probate court will appoint someone. Typically, the court will go with the least expensive option, cremation with no lasting headstone or marker.

What happens to unpaid debts?

What happens to unpaid debts depends on two factors: If anyone else signed loan papers and where the decedent lived. Here are circumstances under which someone else will be responsible for paying debts after the death of a loved one.

• If there was a joint account owner. Let's say someone buys a boat with a friend or purchases a home with a spouse or partner. Since there's a joint account owner, that person is responsible for paying the debt on their own.
• If there's a cosigner. Imagine that the decedent was working toward increasing their credit score and, in the process, asked a parent to cosign on a loan. That cosigner is on the hook for paying the loan.
• The decedent resided in a specific state. If the person who died was married and lived in a state in which spouses share responsibility for specific marital debts, the surviving spouse would be responsible for debt repayment. Other states hold parents and spouses responsible for certain necessary costs, such as healthcare.

Who may be contacted

If there are outstanding debts, the family can expect to receive calls from debt collectors. According to the Federal Trade Commission (FTC), the law protects people from debt collectors who are abusive, unfair, or use deceptive practices. Here's who debt collectors are allowed to contact under the Fair Debt Collection Practices Act (FDCPA):

• Spouse
• Parent, if the deceased was a minor child
• Guardian
• Executor (if there is one)
• Estate administrator
• Anyone with the power to pay debts using assets from the decedent's estate

Stand firm

Unless a person is a joint account owner, cosigner, or lives in a state that requires them to cover specific debts, they should never agree to pay debt held by the decedent. They are not legally bound to bow to pressure from debt collectors. They're not even required to speak with a collection agency.

The first time a debt collector calls, the call recipient should take down their name and contact information. If they don't want to hear from them again, they need to mail a letter saying that they do not want to be contacted again. They should make a copy for their files and send the original by certified mail. If they pay for a "return receipt," they will have proof the debt collector received the letter.

Debt breakdown

Here, we provide a rundown of what happens to specific types of debt.

Credit card debt

If there is money in the estate, the credit card company will attempt to recover outstanding debt from those funds. If there is no estate, no will, and no assets, the debt will die with the debtor unless there is a joint account owner. In that case, the joint account holder is responsible.

Let's say the decedent allowed someone to be an authorized user. That person was not a joint account owner and is not responsible for paying the debt.

Car loan debt

If the decedent left a car behind with a loan remaining, the family has a few options:

• Allow the lender to repossess it.
• Sell the car and pay off the outstanding loan.
• Keep the vehicle and continue to pay what is owed.

If they decide to keep the vehicle, they will probably need to qualify as a borrower or apply for a new loan.

Medical debt

Medical bills are not forgiven when a person dies. If the amount owed is small, the provider may declare it uncollectible and close the account. If the decedent left a large outstanding balance, the provider may work to collect what is owed from the estate.

If the person who died was a minor, the parent is responsible for the bill.

The bottom line on dying without life insurance

There are circumstances under which dying without life insurance could work out. Let's say a person is unmarried, has no dependents, carries no joint debt, and has enough money stashed away to cover funeral costs. The people they leave behind may not need death benefits to get by.

For those concerned about leaving their loved ones with a financial mess to untangle, it pays to shop for the least expensive term life policy available.