Is Life Insurance A Good Idea When You’re In Debt?

You may have heard that it's a good idea to cut back on investments until you can pay off your debt. You may also be trying to cut back on necessary expenses.

However, life insurance doesn't fit into either category. In fact, it can be an important tool when you're in debt.

Should You Stop Life Insurance Like Other Investments?

A whole life policy has an investment component to it. That doesn't mean you should treat it like other investments. When you stop investing in stocks and bonds, you're giving up an uncertain return for the certainty of paying down higher-interest debt. With a life insurance policy, the investment component is a side benefit — the main purpose of the insurance policy. If you drop your life insurance to save the premiums, you're also giving up all the protections that life insurance provides.

Is Life Insurance a Necessary Expense?

Life insurance is almost always a necessary expense, just like your health insurance, home insurance, and auto insurance. You buy life insurance because your family is depending on that money in case something happens to you. The exception would be if you're in a financial position and life stage where you no longer need life insurance. But that's a decision that should be independent of your debt.

Life Insurance Protects Your Co-Signer

A co-signer isn't just a formality to help you get approved for a loan. If you don't repay your loan, even if the unthinkable happens to you, your co-signer has to pay it back. That could be a huge financial hardship for them, unless you've taken out a life insurance policy to cover your debt.

Life Insurance Protects Your Home

If you're married and have a mortgage, you should still consider life insurance to cover it. Even in a dual-income household where either income could cover the mortgage, there's still risk. The surviving spouse could lose their job or just need to take time off and not be able to continue making mortgage payments.

Life Insurance Protects Your Cash Flow

Minimum debt payments can put a dent in any budget even when you're careful about how much debt you take on. Remove an income and add a few unexpected expenses, and things could get even tighter for your family. Life insurance leaves your family with an extra cushion.

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