Let’s begin with mortgages. Many mortgages are covered by mortgage insurance.
Term life insurance is a better choice for these reasons:
If you change banks, your term insurance is already in place.
Term insurance is less expensive.
With mortgage insurance the beneficiary is the lender.
With term insurance you can choose your own beneficiary.
Other considerations in deciding how much life insurance to buy:
covering funeral costs;
replacing your income for at least a few years;
creating an educational savings plan for your kids;
adding to your group life insurance coverage at work in case you change jobs or get downsized.
What happens to your debts when you die?
So, in summary if you die and the mortgage payments are covered by insurance and your spouse is on joint tenancy on the ownership of the home it passes to her tax free.
Debt resides with the individual who has the debt. It is not the responsibility of the spouse to repay, nor are the children responsible for the debt. If the estate has sufficient funds the debts would be paid out of assets you leave behind after you die.
Assets such as Registered Retirement Savings Plans (RRSPs) and Tax Free Savings Accounts (TFSAs) go to the beneficiaries you named direct. There is no obligation on the part of these recipients pay your debts.
So long as you treat all your relatives equally and fairly you will have your assets distributed as you set out in your will.
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