29 Oct Should you buy life insurance before or after you pay off debts?
Let’s talk life insurance and debt.
Just as it’s hard to identify the right time to have kids, it can be tricky to figure out the right time to buy life insurance. This is particularly true when buying life insurance competes with other financial priorities, like paying off existing debts or saving for retirement. (If you know where we can find a crystal ball, let us know!)
Honestly, if you’re looking to put off the purchase, we get it. Debt can be crippling, and every cent that you don’t put towards decreasing that balance can feel like a cent wasted.
So let’s talk about the reasons to wait to buy life insurance (and some reasons not to).
Waiting to buy life insurance is totally okay – in some circumstances
Sometimes, the burden of the debt is, well, yours. You went to university, you racked up student loans, and now you have to make your payments every month. Money is never free, after all.
But if you die, who’s in charge of that debt?
Well, as long as you don’t have a co-signer on your loan, mortgage, or credit card account, the debt goes away if something happens to you. Yes, you read that correctly—it really will disappear just like that!
However, if the debt is “joint,” the survivor (usually yours parents or your partner) will have to pay the balance of the account. This is common with mortgages or joint credit card accounts.
Why not to wait – life insurance is a different kind of purchase
Life insurance is a different kind of purchase than, say, a new car. That’s because having debt is actually one of the main reasons Canadians should have life insurance.
The reality is that life insurance is even more important to have while you have that debt. As a result, you shouldn’t put off buying life insurance until you pay off your debt.
A key purpose of life insurance is to protect your loved ones from your debt
Your debt may seem like a heavy burden on your family today. But imagine if there was suddenly one less person in the picture to help carry that burden.
If your income is supporting your family, think about what your family’s financial situation would be if your income disappeared. If you have debt, holding off on buying life insurance makes that debt even more dangerous to your family than it is now. For this reason, one of the main reasons to buy life insurance is because you have debt.
Insurance doesn’t need to be as expensive as you might think
It may seem like a cruel joke that you have to spend money to protect your family against your debt. But the truth is that life insurance doesn’t cost as much as you may think. In fact, it’s well known that most Canadians believe that life insurance costs 4x more than it actually does. For example, a 20-year, $500,000 term life policy costs around only $35/month for a healthy 30-year-old male. For most people, that can be enough to cover your debt. Go ahead and breathe that sigh of relief!
How can you save on life insurance? Here are some tips:
1. Buy term insurance – As you get older, your family’s future expenses typically decrease. For example, your mortgage gets paid off (finally!) and your kids become independent. (Yes, it really will happen one day.) As these expenses drop, your life insurance needs begin to decrease too. This usually happens around retirement. That’s why temporary (term) life insurance is almost always the best option for families looking for affordable protection.
2. Get the right amount of coverage – Get the right advice to make sure you aren’t overprotectingyourself and your family. Consider how your family depends on you financially and how they would adjust if you died. Better yet, complete PolicyMe’s free life insurance checkup to figure out how much coverage you need without overprotecting yourself.
3. Compare quotes – You don’t want to overpay for your policy, and comparing plans can ensure that you’re getting the best deal. Use PolicyMe to get quotes for the Canadian insurers you know and trust.
Now that you know more about life insurance, let’s get you protected!
Not sure how much coverage you need?
We can help with that. Complete our free life insurance checkup to figure out how much life insurance you need to protect the ones you love.