Debt is, unfortunately, one of those things that most of us are well-acquainted with. From credit cards to student loans to mortgages, it seems as though debt is a regular part of life.
For many of us, there is a comfortable level of debt. You might feel as though you are ok as long as you are working to pay down what you owe on your credit cards. Or perhaps you are fine with using a loan to buy a car or a house, but don’t want credit card debt.
In any case, many of us have a certain amount of our paychecks going toward debt of some kind — even if it’s only a mortgage. When you have the income to cover the cost, it doesn’t seem like such a big deal. But what would your family do if you passed on? The debt would still be there, but the income to deal with it would be gone.
Using Life Insurance to Pay Off Debt
One of the ways you can protect your family is by getting a life insurance policy that is adequate to pay off the debt that you have. That can be one way to help your family improve the financial situation without your income.
Your life insurance policy can protect your family’s finances. Consider how much you can afford to pay for coverage, and figure out how much your family would need to pay off debt without your income. Add up the balance on the mortgage, student loans, credit cards, cars, and other debts. Then, get enough life insurance so that if you die all the debt can be paid off.
If you have the ability to buy more coverage, perhaps providing your family with regular income for a set period of time, or funding college for your children, that might be worth including as well. It comes down to what you hope your family can accomplish even with you gone.
Pay Down Debt Now
Of course, you don’t want to wait until you pass on for your family to be able to be debt free. Get the life insurance coverage now, but keep working toward paying down your debt as you can. It’s much nicer to be able to enjoy a debt-free life with your family now.
Paying down debt also helps you put more of your money into building assets and wealth, rather than spending it on paying interest on liabilities. While you might be comfortable with your current level of debt, it is still worth thinking about how you could improve your overall situation by reducing your debt, and getting your family on firmer financial footing now.
As always, it’s really about personal preparation. You want to make sure your family is protected just in case the unthinkable happens. Hopefully, though, you are also thinking about how you can improve you situation now. That way, if something really does happen to you, your family doesn’t have to use the insurance money just on debt; it can be used to really improve your family’s quality of life.
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i don’t know about the usa, but in my country most mortgage-providers demand you take out a life-insurance together with the mortgage (exactly high enough to pay of the remainder of the mortgage). often you buy these 2 products from the same financial company. sometimes unemployment-insurance is also mandatory.
there was even a bit of a scandal a while back: a bank advertised very cheap mortgages, but than asked customers to take out very expensive life-insurance (‘forgetting’ to mention to customers that they had the legal right to take only the cheap mortgage and get the required insurance from another insurance company).
the bulk of student-loans comes from the government. so they get wiped clean if you die.
(the maximum height of the monthly repayments is directly tied to your income-level. if the debt is not paid of after 20 years the remainder will be wiped out)