What you should know about life insurance and debt

If you have debt — and, according to plenty of recent studies, most of us do — you might be asking yourself whether a life insurance policy fits into your financial plan.

While most term life insurance policies are designed to be affordable — a $500,000, 20-year Haven Term plan for a 35-year-old woman in excellent health, for example, might only cost $17.50 per month — people who are carrying a lot of student loan debt, credit card debt or mortgage debt may be wondering whether they can fit a life insurance premium payment into their budget.

The truth is that investing in an affordable term life insurance policy can still be a smart financial move, even if you owe money on your credit cards, your car loan, your student loans or your mortgage.

Not only will you protect the people who share in your debt — a parent who may have co-signed a student loan, for example, or a partner who may co-own the family home — but a term life insurance policy can also provide your loved ones with much-needed financial security in a worst-case scenario.

Here’s what you need to know.

Life insurance can protect your cosigners

Many people don’t understand what happens to their debts after they die. While some debts may be forgiven after death, others may not — especially if any of your current debts have co-signers.

If a parent co-signed a student loan, for example, they may be responsible for paying off the outstanding loan in full — even if they no longer have your income to help do so. If a spouse or partner co-signed a car loan or a mortgage, they’ll be responsible for the monthly payments. If you and a spouse or family member share a joint credit card, they’ll need a way to pay off the outstanding balance.

That’s where a term life insurance policy can help. By naming your co-signers as beneficiaries on your life insurance policy, you can give them the financial benefits of life insurance, including a death benefit, they may need to help them pay off any unpaid debts.

Life insurance can help your family keep their home

Having a term life insurance policy in place can also protect the family home. If your spouse or partner is co-signed on your mortgage, they can use their life insurance policy payout to help with the monthly mortgage payments.

Even if you are the sole owner of your home, having term life insurance can ensure that the person who inherits your home after your death — a grown child, for example, or a parent — can continue to cover the property taxes, maintenance costs and other financial responsibilities that come with homeownership.

Protecting the family home is one of the best advantages of life insurance, after all — and if you are still carrying mortgage debt, getting your term life insurance policy in place becomes even more important.

Life insurance can help your partner make car payments

Many people don’t consider what will happen to their car after they die — but a good term life insurance policy can help a spouse, partner or loved one pay off any money owed on the car loan, as well as the monthly insurance payments and other costs associated with car ownership.

The last thing your family needs to worry about in a worst-case scenario is whether someone is going to repossess your car, after all. This goes double if your car is the family vehicle. Ask yourself how your kids would get where they needed to go if your partner or spouse no longer had access to your car — and then ensure that you have a plan in place to keep your car payments covered.

Life insurance can help your family cover your final expenses

If you have a lot of debt — especially credit card debt — you might not have a lot of cash left over at the end of every month. You probably don’t have as much money in your emergency fund as you were hoping for, and you might not have enough money saved to cover the final expenses associated with funerals, burials, memorial services or cremation.

The truth is that many people use their life insurance policies as a way to ensure that their family has the funds they need to cover their final expenses, especially if they don’t have enough money saved to pay for the services they want. If your debt repayment plan has taken priority over your savings plan, use life insurance to cover the gap — and help your family cover the costs associated with end-of-life expenses.

Life insurance can provide an inheritance for your loved ones

There’s one more way life insurance can help if you have debt — and that’s by helping you leave an inheritance for your loved ones. Many people want to help their families build generational wealth, but not everyone has enough money saved to leave their children a significant financial gift. The more you owe on your debts, the less likely you are to have set aside the kind of money that can help a child pay for college or make a down payment on a home.

With a life insurance policy in place, you can provide the kind of financial gift that can benefit your loved ones not only now, but also for generations to come. You may pay off your debts tomorrow, or it may take you years to pay off your debt in full — but by applying for an affordable term life insurance policy today, you can take the first step towards a better financial future.

Now that you know about life insurance and debt, start your journey by getting a free life insurance quote today.