Going Deeper Into Debt Increases The Need For More Life Insurance Coverage
The current economic scenario in our country has been tough
. Existing personal debts, compounded by lay-offs and/or stagnated salaries combined with the rising cost of living are plunging millions of Americans into further debt. According to official statistics, personal debt has risen from 65 percent of income in 1980 to 125 percent today. The Federal Reserve has revealed that outstanding consumer debt totaled $2.55 trillion in 2009.Paying off credit card debt, a home mortgage or a business loan is becoming more and more difficult. The obvious way to lower debt is to spend less, get a better job, or improve your income so that you can pay off your debts. However, the current state of the economy just wont cooperate. The only way to protect your family and pay off your creditors is to get more life insurance coverage. According to industry experts, you should have enough life insurance to cover your outstanding debts when you die so your loved ones can start over financially.
Knee deep in debt? Heres a plan
A debt consolidation loan is an obvious first-step if you are knee deep in debt. It will help you in a lot of ways it will put you back on track and stop the embarrassment of staving off creditors. However, when you have taken this first step, you should immediately increase the amount of life insurance coverage. Read on.
Pure life insurance stands for income replacement. However, if the deceased leaves behind a pile of debt, a chunk of that replaced income will be used to pay off debts. That is why, when you use life insurance to settle your debt, you should have enough. The key in using life insurance to settle your debts is to have enough to pay off your creditors or a consolidated debt, yet leave enough for your dependants to live comfortably financially.
When life insurance is used purely for the purpose of replacing income, experts recommend death benefits should equal 10 to 15 times the insured's annual salary. When you are in debt, you should add the sum of all outstanding debts to the above death benefit calculation, so that you are adequately covered. This may seem like a lot, but if you concentrate on getting this in place, you can rest easy knowing that in the worst case scenario your family will be free from your debts. A life insurance needs calculator (available online for free) will also help you to arrive at the right type and amount of life insurance coverage based on your individual debt situation.
Term life insurance will work best.
Term life insurance is the most affordable type of life insurance available today. Whats more, term life rates are at near record lows. For example, a healthy 40-year old male nonsmoker can buy $500,000 of twenty year guaranteed level term life insurance for less than $35 a month.
In the midst of an economy where everything is getting more expensive, this comes as a blessing for those in debt. It may seem contradictory to spend on something while you are in debt, but term life is so affordable, that it wont take a lot of effort to scrape up enough to keep your premiums going. Also, treat it as a necessary expense, because you know that all you have to do is pay the premiums regularly, and things will be sorted out for your family.
Given the current state of the economy, it is normal to be in debt. However, we should try our best not to pass on our debts to our loved ones. Making sure your debts will be paid off in full when you die will give you indescribable peace of mind while you work to improve your finances. Most important of all, you are doing the right thing by protecting the interests of the ones you love.
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