Don’t decide between life insurance or paying off debt
It’s easy to get discouraged or feel overwhelmed at various stages throughout your debt payoff journey. It can be hard to find the money to meet all of your immediate needs, so when the question of life insurance comes up, it’s easy to push the decision down the road until you’re done paying off debt. However, buying life insurance may be the best way to spend money in the middle of repaying debt.
In a perfect world, you could easily put off buying life insurance until your debt is gone. But you have to stop and ask yourself: what would you do if you or your spouse passed away unexpectedly? How would your remaining debt be paid off? How would you avoid going further into debt in the aftermath? These questions make the expense of life insurance worth considering, even when you’re paying down debt.
Debt is an Emergency
Dave Ramsey says debt is an emergency. It’s hard not to agree with that sentiment. Debt, especially high-interest consumer debt, is restricting. It keeps you from reaching goals and enslaves you to a creditor.
Many Americans know this feeling. American household credit card debt reached nearly $750 billion at the end of 2016. That doesn’t even begin to consider other debt like car and student loans.
When you find yourself in such a situation, you need to throw all your spare money at your debt to achieve freedom. Spending on many other things will only impede your success.
Spending on life insurance, however, is not like spending on other things; far from a frivolous expense, it is a vital tool to help protect against other emergencies.
Life Insurance is for Protection
For many people, paying debt means they have little in their budget for luxury items. Luxury items may be why they’re in debt in the first place. Unlike many other things in life, life insurance isn’t a luxury. It’s a fundamental part of a well-balanced financial plan.
Life insurance is often an essential component of a comprehensive financial plan. The right policy ensures those who depend on you financially are protected if you pass away unexpectedly,” says Nick Planeta, Director of Product Development at Unum.
Life insurance may seem needless when paying off debt. You may think it will keep you from your goal of debt freedom. Even if that feels true, you also need to protect your family.
Unfortunately, not all debts go with you upon your passing. Life insurance proceeds may help them avoid the burden of debt, not to mention other end-of-life and future financial needs.
What if You Legitimately Don’t Have the Money?
You obviously need to cover needs like food, shelter, and clothing first. Life insurance should come in the next round of needs to ensure protection. What happens if you legitimately don’t have the funds needed to buy life insurance?
That becomes a different situation, but do know there are still options.
If you’re on a limited budget, a term life policy tends to be the most cost-effective option. Additionally, your employer may offer term life insurance at group rates that are less expensive than you would be able to find on your own,” says Planeta, pointing out there are options if you’re strapped for cash while paying off debt.
Additionally, life insurance coverage may be cheaper than you think. Life Happens reports that individuals overestimate the cost of life insurance by three times. Before you write off the idea of life insurance when paying off debt, do some research to see what it may cost you.
It may be the case that it is too expensive and you must wait until you are on more stable footing. It may also be the case that it’s cheaper than you think, giving you the opportunity to buy coverage – even if it’s in the form of Group Life coverage through your employer.
Know Your Coverage Options
Life insurance is not a one-size-fits-all approach. There are various forms of coverage, all ranging in price, from term coverage, which is typically cheaper, to permanent coverage, which is more expensive. If you are paying off debt, you want to maximize your spending, so it pays to research your options.
With that in mind, don’t think having debt means you need to ignore life insurance.
Being in debt is not a good reason to avoid life insurance. You have an obligation to protect those who depend on you financially, regardless of your current debts,” says Planeta. The last thing you want is to have an untimely death, leaving your family in peril without the resources to provide for their immediate and ongoing needs.
Buying life insurance when paying off debt may seem unnecessary. When done wisely it’s a justifiable expense to add to your life at a time you need to cut expenses.