Few people are aware of what happens with a loan on death.
Well, because what about loans from deceased? Are these waived by the bank or are they automatically inherited?
We explain to you in which situations a mortgage, revolving credit or personal loan is / is not taken over by heirs after the borrower has died. We also go deeper into term life insurance policies. This allows you to cover certain risks in the future.
What happens to a loan on death?
You usually take out a loan, credit or mortgage for a long period of time. Few people look at the possible consequences in the longer term when entering into debt. A dismissal, incapacity for work or, worse still, death is always lurking. You do not want to saddle your partner and children with an immense debt of money, right? And vice versa, you do not want to inherit any debts. If someone dies, the next of kin must suddenly take care of the repayment.
But fortunately there are many exceptions! Everything depends on the conditions against which money is borrowed. The type of loan also determines to a large extent the extent to which debts transfer to family members.
Conditions cancel debt in case of death
Often personal loans and revolving credit are waived after death. It is striking, however, that it may differ per bank or lender or a debt is waived or not. Every provider uses its own conditions for this.
Sometimes only part of a loan is waived, or the amount is only waived if the borrower has reached a certain age limit. We therefore recommend that you pay special attention to the conditions that the provider uses in case of death when applying for a financing.
Large banks often canceled loan
We have thoroughly reviewed the conditions of the larger money banks in the Netherlands and what appears? Large banks in the Netherlands usually cancel a loan on the death of the loan applicant. Borrowing money from small banks or lenders is often cheaper. But with them you usually DO NOT automatically take out a term life insurance policy. This is a payment protector with which you can cover the risk of a residual debt in the event of death.
With large banks, you usually automatically take out a term life insurance policy with your loan. The costs are included in the interest. Incidentally, a bank would like to have such insurance linked to a financing. This gives them the assurance that a loan will be repaid in any case. Also at the moment that the borrower dies.
Cancellation of personal loan or revolving credit by bank / lender
We recommend that you check how they handle a debt in the event of death before you request a personal loan or revolving credit. Each bank and lender has different conditions for canceling loans.
We have made a clear overview below for you. This allows you to check with which lender you can borrow money with remission of a loan on death. Note: The conditions can change monthly.
Prevent surviving relatives from paying off your loan with the term life insurance
If you take out a revolving credit or personal loan, you have paid it off within a few months to years if it is good. But what happens exactly when you die prematurely? And what about when a family member dies and he / she still has a debt open?
With most major banks, this risk is automatically covered by a term life insurance policy. Usually the debt expires or a large part of it. In the diagram above you will find out which bank or lender you are covered against against this risk by default. And is not that the case?
Then we recommend – especially at higher loan amounts – to take out a separate term life insurance policy. Because there are different types of loans, there are also various term life insurance policies.
Personal loan & annuity declining term life insurance
Various types of loans can be taken out in the Netherlands. For example, a personal loan has completely different characteristics than a revolving credit or a mortgage. In this way, you return the same amount to the lender on a monthly basis (loan on installment). These monthly installments consist of 2 components: part repayment and a part interest. The debt is therefore reduced every month and the same applies automatically to the interest amount that you have to pay.
If your lender does not default on a debt on death, then it is wise to take out a life insurance policy yourself with your personal loan. In this case, you can best opt for an ‘annuity-declining term life insurance policy’. The insurer pays a high amount at the beginning of the term. As the maturity progresses, the amount to be paid decreases more and more.
You must declare an annuity percentage yourself for your annuity decreasing term life insurance. Insurers recommend to base the annuity percentage on the interest rate of your personal loan. If necessary, round up the interest rate. Then you are safe anyway. Incidentally, you can only have an amount covered by the insurer with this term life insurance that is equal to the loan amount.
Continuous credit & death insurance
As with a personal loan, a special term life insurance policy is also available for the revolving credit. With a revolving credit you always have some money behind you. You can always withdraw credits repaid once again. The constant term life insurance policy fits this consumer credit.
The insurer pays out a fixed amount of money in this form of insurance. The insured amount may not exceed the maximum amount that you can withdraw. The advantage of this term life insurance is that you are never underinsured.
Decease partner and mortgage on home
In mortgages, life insurance policies are almost always taken out with the bank. This allows relatives of the deceased to redeem the mortgage or at least a part of … Any partner who stays behind can stay in the house. Ask your mortgage advisor what has been agreed with the bank.
As an heir you must report death to the lender
In principle, an heir (or joint heirs) always inherits the debt of the deceased’s outstanding loan. Unless the personal loan, the revolving credit or the mortgage is repaid after the borrower has died. You can read all of that in the conditions of the relevant provider or in the loan agreement.
If someone dies, not only the assets are transferred to the heir or joint heirs, but also possible debts. For example, a loan can also be seen as a debt. Because this amount must be paid back sooner or later. It can be different for the heirs per type of loan or loan what happens in the event of a death. As you know now, many loans are waived but only if the deceased was insured for it.
Is not that the case? Then you as an heir / survivor must repay the debt or reject the inheritance. In the first case you automatically choose to ‘accept’ the legacy. You accept the full inheritance, including current loans and / or other debts. In the latter case, in case of a rejection, you no longer claim the (complete) estate as a survivor. So you do not inherit anything. Also no debts.