What Happens If Someone Dies & Has No Life Insurance?

What Happens If Someone Dies & Has No Life Insurance?
••• Comstock/Comstock/Getty Images

Life insurance provides benefits to surviving family members when a person dies. Depending upon the specific terms of the policy, life insurance might compensate a family for lost wages, help the family cover end-of-life medical expenses or ensure that survivors have adequate funds to pay for a burial. When someone dies without life insurance, her family may be left with reduced financial resources, forced to deal with financial problems in the midst of grief.

Life Insurance Basics

No one is obligated to get life insurance, and nothing specific happens if a person dies without life insurance. Instead, life insurance simply provides an additional financial cushion to help cover the expenses associated with losing a loved one. Some pension plans continue to pay benefits to a spouse or children for a set period of time, and Social Security survivors benefits may kick in when a spouse or parent dies.

Medical Expenses

Medical care can quickly become expensive, and the medical costs associated with a sudden death caused by an accident, heart attack or other unexpected cause can be overwhelming. Health-care bills are a leading cause of bankruptcy in the United States, but life insurance can help cover the costs of medical expenses. Life insurance also protects a family's assets by ensuring they're not lost due to such a bankruptcy.

Burial Expenses

The average cost of a funeral in 2009 -- the latest year for which statistics were available from the National Funeral Director's Association -- is $6,560. Life insurance usually covers the cost of a funeral and burial or cremation.

Taxes and Debt

If you leave behind a large estate, your survivors may have to pay estate taxes. They might also have to pay for tax-related debt you accrued during your lifetime. Life insurance can help defray these costs, making it easier for survivors to benefit from the assets that are willed to them. However, for many middle class families, estate taxes won't be an issue, and survivors are not always liable for their loved ones' debts. So taxes and debts will not be a concern for every family.

Lost Wages

Particularly if a deceased person has young children, the lost wages associated with her death can cost her family dearly for years, interfering with college savings, cost of living and overall lifestyle. Many life insurance policies compensate a family for several years of lost wages, ensuring that survivors do not have to worry about finances as they grieve.