What happens to your debt when you die? A Hippo guide

Let’s talk about something no one likes to think about: what happens to your debt when you're no longer around. You might assume that when you go, your debt goes with you - but unfortunately, it’s not that simple. Before your loved ones receive a cent of your estate, any outstanding debts need to be settled.

But don’t panic just yet. Understanding how different types of debt are handled after death can help you plan smarter and protect your family from unexpected financial stress.

The role of your estate in debt settlement after death

First things first - what exactly is your estate? It’s everything you own, from your house and savings to your car and even your prized sneaker collection. When you pass away, this estate doesn’t just go straight to your heirs; first, it’s used to pay off any outstanding debts.

If your estate has enough funds, your debts are paid, and the remaining assets are passed on to your beneficiaries. If there isn’t enough money to cover everything, some debts may go unpaid and get written off.

The good news? In South Africa, your family won’t inherit your debt unless they’ve co-signed or guaranteed it. But that doesn’t mean debt disappears entirely, so let’s break down what happens to different types of debt when you’re no longer around.

How to deal with debts as the executor of an estate

As the executor of an estate, your role is to manage the deceased’s finances, and yes, this includes settling outstanding debts. You’re going to want to start by making multiple copies of the death certificate and ensuring you have legal authority through probate. Then, make sure you let all the creditors know, and for your own records, make sure all claims are documented. Debts must be paid in priority order, covering funeral expenses, legal fees, secured loans, taxes, medical bills, and finally, unsecured debts like credit cards.

If the estate doesn’t have enough funds, some debts may go unpaid, but you are not personally responsible for paying these, unless you co-signed a loan.

Who’s responsible for your debt after death?

Not all debt plays by the same rules. Here’s a quick guide to what happens to different types of loans:

• Personal loans and credit cards: These are paid from your estate. If there’s no money left, they’re typically written off.
• Home loans: If you have a bond, the bank may require the property to be sold to settle the outstanding balance. If someone co-signed the loan, they’ll be responsible for continuing the payments.
• Car loans: If the loan isn’t paid off, the lender may repossess the vehicle. If a family member wants to keep the car, they may need to settle the remaining balance.
• Student loans: Some student loans are written off when the borrower passes away, but it depends on the lender’s terms. If a parent or guardian co-signed, they could still be responsible.
• Joint debt and co-signers: If someone co-signed a loan or had joint debt with you, they’re still responsible for paying it off. That’s why it’s important to have a financial plan in place.

Understanding credit life insurance

Many people don’t realise that when they take out certain debts - like a cellphone contract, credit card, or any other post-paid debit order - a credit life insurance policy might be included, often without their knowledge. This type of policy is designed to cover the outstanding debt if the borrower passes away, ensuring that their family isn’t left with unexpected financial burdens.

While this can be a safety net, it’s worth reviewing these policies. If you already have life insurance, you may be able to cancel unnecessary credit life policies and save money every month. Your life insurance can cover your debts, often at a better rate, and ensure that your loved ones aren’t paying for policies they don’t need.

Plan better with Life Insurance. Get your quotes with Hippo today

Final thoughts: plan now, stress less later. It’s uncomfortable to think about what happens after they’re gone, but a little planning on your part now can save your loved ones a lot of stress later. One of the best ways to ensure your debt doesn’t outlive you is to have a solid life insurance policy.

With the right cover, your debts can be taken care of, and your family won’t be left scrambling to pay off loans. At Hippo, we make it easy to compare Life Insurance options so you can find a policy that gives you and your loved ones peace of mind.

Take the smart step today - compare Life Insurance with Hippo and secure your family’s future.