If a mortgage borrower dies, what does the insurance pay and who claims it?

The life insurance pays the bank the debt outstanding on the date of death, or the share that covered that borrower, for example half if each was insured for 50 %. If any of the sum insured is left over, it goes to the other beneficiaries. Although the bank is the first beneficiary, the “Tribunal Supremo”, Spain's Supreme Court, allows both the insured and the family member who is the beneficiary of the surplus to claim against the insurer. Instalments that continue to be paid after the death must be refunded.

Alburquerque Abogados

José Manuel Alburquerque
Insurance law

What it pays

  • The capital outstanding on the date of death, up to the sum insured.
  • If the borrower was insured for a percentage, only that percentage. The other borrower carries on paying the rest.
  • If the sum insured was greater than the debt, the difference goes to the next beneficiaries, usually the spouse, the children or the heirs.

How to claim

  • Notify the bank and the insurer of the death in writing as soon as possible, enclosing the death certificate.
  • The bank ought to claim, but if it does not or the insurer does not pay, the heirs and the other borrower can demand that the insurer pay the bank.
  • While this is being resolved, keep paying the instalments to avoid falling into arrears and then ask for a refund of those paid since the death.

Worth knowing

  • If the insurer alleges that the deceased concealed an illness when taking out the policy, it will have to prove that he or she was asked about it and that the concealment involved wilful misconduct or gross negligence. Once a year has passed since signing, only if there was wilful misconduct. The Supreme Court has ordered insurers to pay where the employee filled in the questionnaire or it was generic.
  • What the bank receives is not subject to the “impuesto de sucesiones”, the Spanish inheritance tax. But if the other borrower also owed the mortgage, the tax authorities have taken the view, in a ruling of December 2025, that the part of his or her debt paid off by the insurance is a gain that he or she must declare for the “IRPF”, Spain's personal income tax. Seek advice on this before filing your income tax return. The surplus received by family members is subject to inheritance tax, with the allowance specific to life insurance, which in Catalonia is up to 25.000 euros for the spouse, descendants and ascendants.

This answer is provided for educational purposes and offers initial guidance on the question raised. Every matter has its own circumstances and nuances that require individual assessment. For that reason, before taking decisions with significant consequences, it is advisable to consult a professional and not to rely solely on this information. Personalised advice makes it possible to apply these explanations to the specific case and to assess the options available with greater certainty.