“Debts don’t just disappear miraculously.”

As the baby boomer generation ages, a wave of inheritances known as “huge wealth transfers” is underway. There is also a huge debt transfer ahead that younger Americans will have to manage.

According to a PolicyGenius survey, more than 46% of Americans expect their debts to be transferred to loved ones when they die. The average American household has $10,000 in credit card debt, $58,957 in student loans, $241,840 in mortgage debt, and $22,612 in car loans.

“Debts don’t miraculously disappear when someone dies, and unpaid debts can be paid out of assets such as real estate, retirement accounts, and bank accounts,” Rosalyn Glenn, a financial planner at Prudential, told Yahoo Finance. “I will be exposed,” he said. She said: “If you have assets, your debts can be transferred on your death, but without a plan to manage your debts, your family will be at risk.”

As many people make New Year’s resolutions for their health, it’s a good time to take a look at your assets, especially your life insurance coverage. So instead of transferring debt to your loved ones, you can leave a legacy of financial management and wealth building.

“Unfortunately, in some cases, families were displaced because their income was reduced and the surviving spouse was unable to maintain the mortgage on their sole income,” Glenn said.

Life insurance that reduces debt transfer

Of the percentage of Americans who expect to be left with debt upon death, 21% do not have life insurance, according to a study by PolicyGenius.

“One of the benefits of life insurance is that it protects you in the event of your loved one’s death and eliminates the responsibility to pay jointly owned debts, such as a mortgage,” says Shardea Ages, a certified financial planner at Collective Wealth Partners. remains,” he told Yahoo Finance. . “And the best part is, in most cases, life insurance proceeds are tax-free.”

When it comes to student loan debt, a lot depends on whether the debt is federal or private.

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“While federal student loans are forgiven upon the death of the borrower, some types of student loans issued by private lenders may be passed on to a loved one upon the borrower’s death, especially if the loan was co-signed. It’s possible,” said Jessica Ruggles of the corporation. New York Life’s vice president of financial wellness told Yahoo Finance.

Wealth and debt disparity

PolicyGenius research finds households with incomes over $150,000 have more debt than lower-income households, but higher-income households are more prepared to help loved ones pay off debt did. Only 13% of high-income households had no life insurance, compared to 31% of low-income households.

The study also revealed racial disparities in debt, which contributes to the racial wealth gap, and found that “Black and Hispanic Americans are more likely to own “They have difficulty accessing credit to make big purchases,” he said. For generations. ”

Typically, most people pass home ownership and life insurance proceeds down through the generations to their families.

The Black homeownership rate was 45.5%, and during the housing pandemic boom, many Black homeowners missed out on refinancing opportunities to access equity and lost equity in home sales due to appraisal bias.

Although the homeownership rate for Hispanics is slightly higher at 48.6%, it is still lower than the white homeownership rate of 74%.

Many black and Hispanic households also lack life insurance.

Approximately 56% of black Americans have life insurance, but many are underinsured. This means that misunderstanding of how life insurance works and distrust of the industry as a whole means that their benefits are not sufficient to replace income or provide intergenerational wealth transfer.

Only 42% of Hispanics have life insurance, and trust issues, language barriers, and cultural differences prevent them from purchasing life insurance, a critical cash injection that bridges the gap between rich and poor in the Hispanic community. There is.

Adding to the problem is the lack of financial planning professionals. Only 1.8% of Certified Financial Planners (CFPs) are Black and 2.7% are Hispanic.

Lifetime protection through life insurance

Although most conversations about life insurance revolve around mortality, some life insurance policies include benefits that are available for the policyholder’s lifetime.

“Life insurance is also for the living,” Glenn said.

Unlike term insurance, whole life insurance policies last a lifetime and receive a death benefit plus a cash value less taxes. The cash value can be used in the form of loans or withdrawals over the life of the policyholder.

More Americans are turning to permanent life insurance to weather inflation and avoid draining their retirement accounts.

Financial planners typically recommend a combination of term and whole life insurance.

read more: A step-by-step guide to making a life insurance claim

It’s important to regularly check in on your financial health and adjust your financial plan to life changes such as birth, death, divorce, or health problems.

Rhonda is Yahoo Finance’s senior personal finance reporter and an attorney with experience in law, insurance, education, and government. Follow her on X @writesronda