When you’re deep in debt and working to pay it off, it’s easy to blur the lines between needs and wants as you work to cut
expenses and crush your debt as soon as possible. How do you decide what expenses to cut and what to keep? What about ‘borderline’ needs such as life insurance policies?
Here’s how you can decide whether or not to keep (or to purchase) a life insurance policy when you’re in debt and working to get out from under the pressure of the debt as soon as possible.
For Most People Life Insurance Should Count as a Need
Most people should make life insurance a priority even when they are deep in debt. In order to wrap your head around the why, I want you to ask yourself a question:
What would happen to my family from a financial standpoint if I suddenly passed away while we were deep in debt?
Not a fun question to think about, but a serious necessity. How would your family’s financial situation change if you were gone (along with your income) but the debt was still there? Without a life insurance policy to replace the lost income, the results could be disastrous.
A situation like that could put your family from “paycheck-to-paycheck living” to “bankruptcy, foreclosure or both” real quick.
On the other hand, having a solid life insurance policy that would cover several years of your income would help your spouse to be able to pay off any debts and support themselves and your children should anything unexpected happen. It would allow your family to not have to count money as an additional worry while dealing with the other ramifications of an untimely death.
This is why life insurance is a definite need, right up there with food and shelter, even when you’re dealing with paying off massive amounts of debt.
How to Afford Life Insurance As You Work to Pay Off Your Debt
The good news about working a life insurance payment into your budget when you’re also trying to pay off debt is that there are some really affordable life insurance policies out there.
A term life insurance policy (term policies generally last for twenty years) is often super affordable, and it’s not unreasonable to find reputable insurance companies that will provide you with hundreds of thousands of dollars in coverage for as little as $20 or $30 per month.
The problem with letting go of your life insurance to save money is that in the event of a disaster, it could wind up costing your family thousands they may not be able to afford. – Bankrate, Don’t Drop Your Life Insurance
An extra $30 or so worked into your budget should be easily doable for most people. If your money is super tight because of the debt and you’re finding that coming up with an extra $30 a month is tough, go through your budget and eliminate any extra expenses such as cable or satellite TV, entertainment expenses, or trim your grocery budget if you can.
If need be – or in order to accelerate debt payoff – consider a side hustle that will bring more income into your family in order to help the budget be a little less tight.
Having financial safety and security for your family in the form of a life insurance policy is well worth any time or financial sacrifice you’re making, even if money is tight.
How Much Life Insurance Should I Get?
This is another question to consider before buying a life insurance policy. As you consider how big of an insurance policy you need, ask yourself these questions.
- How much money would my family need to be completely debt free in the event of my untimely death?
- How many years of income would I like my spouse and children to be able to have to live on in the event of my untimely death?
Combine those two numbers, and that will give you a general idea of how large of a life insurance policy you should consider purchasing. As far as question number two goes, it’s a good idea to have enough in life insurance to cover the years of annual income needed for your kids to reach adulthood and finish college.
When You Might Not Need Life Insurance
Not all people in all situations need life insurance, even when deep in debt. If you’re single and have no children, life insurance is not as much of a priority, with the possible exception of a small policy ($10,000 or so) to cover burial expenses.
Many people don’t need to worry about outliving their life insurance, because they outlive their need for life insurance. –Forbes, When Don’t You Need Life Insurance?
As a single person, if you die while in debt your debts are written off and the responsibility for them isn’t passed on to anyone else, as long as those debts are in your name alone.
Also, if you have accumulated enough assets to cover several years of expenses for your family, life insurance may not be necessary.
As you can see, there are many reasons why having a substantial life insurance policy – even when you’re in debt – is a good idea when it comes to protecting the wellbeing of your family. If you don’t currently have a life insurance policy, now is the best time to go about getting one.
Do you have debt? Do you have life insurance as a line item in your budget?
Deacon Hayes is a Personal Finance Expert who is best known for paying off $52,000 in consumer debt in 18 months. Through his company Well Kept Wallet, he has helped thousands of people develop a financial game plan so they can achieve their financial goals in life. He has been featured in the US News & World Report, MSN Money, Yahoo Finance and more.*Written by Chris Huntley. Huntley Wealth Insurance and its representatives do not give legal or tax advice. Please consult your own legal or tax adviser.