I’m often surprised by the number of people who don’t have a life insurance policy. This is despite caring for a young family and repaying a mortgage.
However, with the bailiffs at the door, the credit card company on the phone and the payday lenders sending their daily text trying to reclaim their money, it’s easy to understand life insurance may not be the main priority.
It’s all too familiar to assist somebody in debt where they have no life insurance policy.
The thought of spending money on “something which may never happen” seems unnecessary, especially when debts have accrued to over £30,000.
Over 120,000 people enter an insolvency solution every year across the UK but life insurance is a valid monthly expenditure, even for people in debt.
The majority of people entering bankruptcy, an IVA (England, Wales and Northern Ireland) or a Trust Deed (Scotland) won’t have this insurance in place.
For those that do, it’s often the wrong life insurance policy because of the changes to their financial situation.
What Happens If Somebody Dies In A Debt Solution?
If a person enters an insolvency solution, their assets transfer to their insolvency practitioner. This typically means a house or car, however it can mean a windfall, bonus from work or money from a life insurance policy.
In the unlucky event when somebody dies during a debt solution and they have a life insurance policy, the insurance money is paid to the insolvency practitioner as an asset. This money is then used to repay debts and insolvency fees. If there is no money left then the family is responsible for the funeral costs.
The alternative option is to place the life insurance policy in trust. In the unfortunate event of somebody dying whilst in a debt solution, their life insurance money would be paid to the policy Trustee, not the insolvency practitioner.
That’s why it is vital to place a life insurance policy in trust for people in debt.