What you should know about life insurance and debt

If you have debt – and according to many new studies, most of us do – you may be asking yourself if life insurance fits into your financial plan.

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

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

Not only will you protect the people who share in your debt — a parent who may have taken out a student loan, for example, or a partner who may be a co-owner of the family home — but life insurance can also provide loved ones with much-needed financial security at worst.

Here’s what you need to know.

Life insurance can protect your cosigners

Many people do not understand what happens to their debts after they die. While some debts can 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 mortgage, they will be responsible for the monthly payments. If you and a spouse or family member share a joint credit card, they need a way to pay off the outstanding balance.

This is where term life insurance 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 pay off any unpaid debts.

Life insurance can help your family keep their home

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

Even if you are the sole owner of your home, term life insurance can ensure that the person who inherits your home after your death – an adult child, for example, or a parent – can continue to cover property taxes, maintenance costs and other financial obligations that come with it home ownership.

After all, protecting the family home is one of the best benefits of life insurance – and if you still have mortgage debt, getting your life insurance in place becomes even more important.

Life insurance can help your partner make car payments

Many people don’t think about what will happen to their car after they die – but good life insurance 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 in connection with car ownership.

The last thing your family needs to worry about in the worst case scenario is if someone is going to repossess your car after all. This goes double if your car is the family car. Ask yourself how your children would get where they needed to go if your partner or spouse no longer had access to your car – and then make sure 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 may not have a lot of money left over at the end of each month. You probably don’t have as much money in your emergency fund as you hoped, and you may not have enough money saved to cover the final expenses associated with funerals, burials, memorial services, or cremation.

The truth is, many people use their life insurance policies as a way to make sure 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 a legacy to your loved ones

There’s one more way life insurance can help if you’re in debt – and that’s by helping you leave a legacy to your loved ones. Many people want to help their families build generational wealth, but not everyone has enough money saved to give 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 pay for a child’s college or make a down payment on a home.

With life insurance in place, you can give the kind of financial gift that can benefit your loved ones, not only now, but for generations to come. You could pay off your debts tomorrow, or it could take you years to pay off your debt in full – but by applying for affordable life insurance 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.