If you think worrying about your legacy is the exclusive preserve of politicians, tech barons and athletes, think again. You may assume that, after the inevitable happens, you’ll just live on through your achievements, your children, and old social media accounts linked to long-lost email addresses, but there is something else that will outlive you, too: debt.
When it comes to your estate it’s near-impossible to make sure your loved ones only inherit the good stuff: if your house still has a mortgage on it, you’ll be giving that, as well as the property, to your executor to handle. Should you leave behind an art collection and the private loans you took out when you studied art, one may need to be sold to pay the other.
Your estate’s debts are paid by your estate’s assets, and if you’re not prepared, there’s a risk the two could cancel each other out. Furthermore, in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin and, to a lesser extent, Alaska), all debts incurred during marriage are the responsibility of both spouses, regardless of which partner took them on.
Types of debt
All debts are not created equal, and many people’s biggest concern will be their mortgage. If there’s a joint homeowner (often a spouse), they become the sole owner of the property, and are also responsible for loan repayments; if there’s no joint owner, your heirs can take over the mortgage at the same rate. Both of these scenarios can be fine if those left behind can afford the payments, but it’s a major financial burden if not. If there is enough money in the estate, it can be used to pay off the mortgage. The flipside is that if the property represents the only asset and the estate has other bills, the house may need to be sold to pay them: this is a problem that can go from bad to worse if the property market has gone down and the house is actually worth less than it was when the mortgage was taken out.
Credit cards and student loans are also common worries: Millennials are the most educated generation in history, and this has not come cheap. Unpaid loans abound, as does credit card debt; according to Forbes, 65% of millennials are unsure if they’ll ever be debt-free. While credit cards and student loans aren’t secured by assets the way a mortgage is, co-signers of most private student loans and joint account holders on credit cards are still responsible for unpaid bills. (Authorized users of credit cards are not responsible, so keep this in mind when adding children to family cards.)
When thinking about debts, one also has to consider short- and medium-term obligations such as school fees that may be due, or car payments (if these can’t be paid, the vehicle may be repossessed).
A simple solution
The bottom line is that, even with careful planning, you are likely to leave some debts behind , so you need to be prepared. One of the best ways to deal with this problem is by purchasing a life insurance policy.
A life insurance policy can be used by your beneficiaries to help pay toward bills like the mortgage, co-signed debts and other day-to-day expenses. And getting one is far simpler and affordable than most people realize (one 2015 study found that millennials overestimate the cost of life insurance by more than 200%). One of the most economical and simple types of life insurance is known as “term” life insurance, since it covers a set number of years (the “term”). The most common terms are 10, 15 20 and 30 years, but you can choose the period of time that best suits your needs. Term life insurance premiums are paid monthly, and they’re surprisingly affordable, costing significantly less than whole life insurance: for example, a healthy 35-year old man could get a 30-year, $500,000 plan for around $35 a month; a $500,000 whole life policy would cost around $560 a month*.
When choosing the dollar amount of the plan and the term, consider how much money your dependents would need if you died, and when that need would end. For example, if your salary is the main source of household income and you have young kids and a mortgage, you may want a plan that can cover the bills and other financial needs until the mortgage has been paid off and your children are old enough to be financially independent. Or perhaps you have a few loans you’re planning to pay off in the next five to ten years, but you want to make sure your spouse doesn’t have to deal with them if something unexpected should happen.
Whatever your needs, it’s quick and easy to find out what plan would suit you best. Digital-centric agencies like Haven Life have online life insurance calculators that can help you work out what coverage is right for you and what it will cost in minutes. They also have guides to the different types of life insurance to enable you to make an informed choice.
Once the policy is set up, if you use autopay you don’t have to give it any more thought than your monthly phone bill (and it’ll probably cost you less): you can just forget about it and get on with your life, albeit with a newfound peace of mind. Whatever happens in your future, you’re going to leave a legacy of some kind, so it may as well start with a debt-free family.
Michael Davis is a freelance writer and editor. He has covered everything from fashion and music to parenting, work, and finance. In a previous life, he was a chef and restaurateur.
*Whole life insurance quote is sourced from State Farm Life Insurance Company