Have a Lot of Debt? You May Want to Make This Important Life Insurance Move


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Buying life insurance is a great way to protect the people that are most important to you. Those people might be your spouse, your children, or other loved ones who are a big part of your life.

But sometimes, the amount of life insurance you start out with doesn’t end up being the amount you end up needing. In fact, it’s common to need more coverage over time. And that especially holds true if you end up racking up a lot of debt.

Why debt could spur the need for more insurance

The word “debt” tends to have negative connotations, but the reality is that not all debt is bad. Let’s say you recently bought a home that required you to take out a $400,000 mortgage. That’s not a financially unsound move, because that mortgage could help you own an asset that can gain value while putting a roof over your family’s head.

But still, it’s hard to argue the fact that a $400,000 loan is a large sum of money to owe. And so if you end up with a lot of debt, whether in the form of credit card balances, car loans, or a home loan, it’s a good idea to assess your life insurance policy and see if it pays to increase your coverage.

Generally, if you’re married, your spouse will be responsible for paying off joint debts in the event of your passing. And even if you don’t have joint debts, your creditors may be able to come after your estate to get repaid on the debts they’re owed in your name only, thereby leaving your loved ones with less. But if you up your insurance coverage after adding to your debt load, you might spare your beneficiaries that financial stress.

So, say you bought a life insurance policy with $500,000 in coverage at a time when your debt was limited to a $2,000 credit card balance. If you now have a $400,000 mortgage, it may be a good idea to increase your coverage. If you don’t, your spouse or beneficiaries who live in that home might struggle to keep paying for it. And that’s not a situation you want to put them in.

Paying off unhealthy debt

It’s a good idea to try cutting back on spending and even boosting your income to pay off unhealthy types of debt, like money you owe on credit cards. But for something like a mortgage, expecting to pay it off quickly isn’t realistic. In fact, there’s a reason 30-year mortgages are so popular — it’s because homeowners generally aren’t expected to finish paying off a house quickly.

But while you don’t have to rush to pay off a mortgage (or stress about owed money on one), it does pay to increase your life insurance coverage if you take one out, or if you end up with a notable increase in debt. Doing so could spare your loved ones a world of financial stress in the event of your untimely passing.

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