Get money-saving tips in your inbox.

Stay on top of personal finance tips from our money experts!

News & Resources

As the saying goes, the only sure things in life are death and taxes. And, unfortunately, the former won’t allow you to escape the latter. If you’re self-employed, for example, and die still owing outstanding installment payments, the Canada Revenue Agency will come to collect from your estate if your family doesn’t take care of it first.

But what happens to your other debts, like your mortgage and credit cards, when you die? Here’s an overview.

Note that various credit card companies and lending institutions may have unique policies in place so you should consult with your specific debt-holders to verify details. The best advice for planning for your eventual death – yes, we’ll all die sooner or (hopefully) later – is to have a legally registered will. Dying without a will can be a costly hassle for your surviving family members to sort out.

Credit card debt

First, the good news: any debt you have on credit cards solely in your name will typically be written off as a loss by the lending company should you die.

They’re considered unsecured creditors and would be at the back of the line of debt holders trying to collect from your estate. If, on the other hand, your credit cards are joint accounts with your partner or spouse, he or she will be responsible for continuing to make any payments owed. (After your death, one of the many things on your survivor’s to-do list will be updating any accounts to take your name off them to eliminate the risk of fraudulent activity being carried out in your name.)

Mortgage and car loan debt

Mortgages and car loans, however, are considered secured loans and the lenders will come after your estate to ensure they’re paid in full.

Odds are, these larger purchases were co-signed by you and your spouse anyway so the surviving person can continue to make the payments as before. But if they wouldn’t be able to do so without your income, you need to read the next section.

Protect your family

If you do have a substantial amount of debt that your spouse and family may end up being held accountable for, you should have a plan in place to pay for that. Your best bet is an insurance policy.

What you might not know about mortgage insurance

Whenever you sign up for a mortgage, you’ll be offered a “mortgage insurance” policy. Decline it.

Mortgage brokers like these policies because they pocket an extra commission, and they do make it sound enticing to have your mortgage instantly wiped out should one partner die. The catch is that while the payments may be fixed, the actual value of the payout declines as you pay off your mortgage. In other words, year after year you’re making the same payment for a continually decreasing amount of money should you need to collect the insurance.

Life insurance is the better option

You’re better off with a standard term life insurance policy.

The payout is non-taxable and your surviving spouse is free to use it however they see fit. They could, for example, use the funds to pay off any high-interest debts, and set aside a nest egg to cover the mortgage payments and other ongoing expenses while they adjust to their new life.

Likewise, credit card companies offer insurance plans tied to their cards that cover you in the event death, illness, or unemployment make it difficult for you or your partner to make your payments. Again, this probably isn’t the best path to take. The rates are based on your outstanding balance and if you’re already having a hard time keeping up with your payments, this is just another way to keep the debt spiral swirling.

You’re better off contacting an insurance broker about a disability insurance plan that covers all your living expenses – not just a single credit card bill.

Allan Britnell

Toronto-based freelancer Allan Britnell is an award-winning writer with nearly 20 years’ experience. He covers a diverse range of topics, including DIY and professional home renovation projects, nature and the environment, small business, personal finance, and family and health issues. He is also the managing editor of Renovation Contractor, the publication written for small- and medium-sized contracting and custom home building companies. He lives in Toronto with his wife, two daughters, and their dog, Oscar.

Latest life insurance articles

10 Life insurance myths debunked
Life insurance is for someone older or has kids, right? Wrong. Let’s debunk life insurance myths and learn why everyone needs some form of coverage.
6 mins read
Do you need life insurance? A primer for Canadians
Life insurance isn’t a one-size-fits all solution. But if you have dependents, it can be an important financial safety net for those you love.
7 mins read
Why life insurance should be part of estate planning for new parents
Life insurance is one of the best ways new parents can protect their family and help loved ones in the event of your unexpected death.
5 mins read

Subscribe to our newsletter

Stay on top of our latest offers, relevant news and tips!

Thanks for joining!

You'll be hearing from us shortly - stay tuned.