Many people routinely take on debt. You might sign a mortgage to buy a house, finance a car with an auto loan, and rack up some charges on a credit card that you don’t pay off for quite some time.
But while it’s one thing to subject yourself to debt, it’s another thing to put your loved ones in a position of having to pay it off in your absence. Unfortunately, 46% of Americans expect to pass on debt to their loved ones when they die, according to data from Policygenius. And among people who expect their loved ones to inherit their debt if they die, 21% have no life insurance coverage.
If you don’t want to burden your loved ones with debt in the event of your passing, then it pays to put life insurance in place. It’s especially important to do so if you’ve taken on debts jointly with another family member.
It’s all about protecting the people you care about most
Whether your loved ones will be responsible for covering your debts upon your death will depend on the circumstances involved.
Often, remaining family members are not responsible for paying off the debts of relatives who have passed. If you have a credit card account in your name only, and you die with a $4,000 balance unpaid, it’s not a given that your surviving spouse or children will have to pay it off. However, what is likely to happen is that the money to satisfy that debt will come out of your estate.
But still, if you’re worried about your loved ones getting stuck having to pay off your debts, then it pays to put life insurance in place. And it’s especially important to do so if you have debts jointly with another family member. In that situation, your surviving relative will generally have to cover the remainder of that debt on their own.
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For example, let’s say you and your spouse bought a house together. If both of your names are on the mortgage, your spouse will generally have to repay that loan upon your passing. So in that case, it could pay to buy a term life insurance policy with enough money to not only provide your spouse with some income in the event of your passing, but also enough of a benefit to satisfy that mortgage balance in full.
Shop around for affordable coverage
If you’re already grappling with debt, then you may be hesitant to spend money on life insurance premiums. That’s yet another expense your income will need to cover.
However, you may be surprised at how affordable a term life insurance policy is. And you can also, if need be, limit your coverage to debts you owe jointly with a loved one.
Let’s say you have 10 years left on a mortgage you signed jointly with your adult son, and the balance on that loan is $250,000. What you may do in this case is simply take out a 10-year, $250,000 term life policy. There’s no need to get a $1 million policy if your son is gainfully employed and doesn’t rely on you for income.
Of course, the amount you’ll pay for life insurance will hinge on not just the amount and length of your coverage, but also your age and health. But it could be a good idea to buy that coverage so you don’t leave someone you care about in the lurch in the context of lingering debt.
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