If your home loan is covered by credit life and the claim is valid, the insurer pays the outstanding balance to the bank and the bond is settled. If it is not covered, the bond is a debt of your estate. The bank holds security over the property, so your executor may have to settle the bond, transfer it to an heir with the bank’s agreement, or sell the home.
If your bond has credit life
The insurer pays the outstanding balance to the bank, up to the insured amount, and the bond is settled. Before you rely on this, check:
- Whether the insured amount covers the whole bond, including any additional amounts you drew down.
- Whether the cover is for you alone or for each borrower on a joint bond.
- What happens when one of two borrowers dies: whether the insurer settles the whole bond or only that borrower’s share.
If your bond has no credit life
The bond is a debt of your estate, and the bank holds the property as security. Your executor and the bank usually look at these options:
- An heir takes over the bond. This needs the bank’s agreement, and it will usually assess whether the heir can afford the repayments.
- The estate or an heir pays off the bond, for example by refinancing.
- The property is sold and the bond is settled from the proceeds. If the sale does not cover the bond, the shortfall remains a claim against the estate.
If repayments stop, the bank can take legal steps to recover the debt, which can include selling the property through the courts. If you were married in community of property, the joint estate is involved, so speak to an attorney.
Credit life is not homeowner’s insurance
Credit life concerns events affecting you as the borrower. Buildings insurance covers damage to the property, and it is usually a condition of the bond. Ordinary life cover pays your chosen beneficiaries. They do different jobs, so review each one. See home loan cover.
What your family should do
- Tell the bank and any credit life insurer about the death promptly.
- Ask the bank for a bond statement and a written settlement figure.
- Keep the buildings insurance, rates and levies up to date while the estate is administered.
- Ask the executor, who is appointed through the Master of the High Court, how the bond will be handled.