Everyone needs life insurance, everyone – even if you have no children or other dependents. The grim reality is that death is expensive: the average funeral in America cost between $7,000 and $10,000. But life insurance not only helps those you leave behind cope with the funeral cost, it can also help them avoid financial hardship and bankruptcy. Let’s take a look at some of the best life insurance policies for avoiding bankruptcy.
Term Life Insurance
Term life insurance is a pure death benefit that will pay a fixed amount to your beneficiaries upon your death. It’s typically recommended that your coverage should be 8 times your annual salary so that your family is covered financially if you were to suddenly pass away. The payout amount should be enough to repay your debts such as a mortgage and jointly held credit cards so that your family can avoid bankruptcy.
A term life insurance policy usually lasts for 10, 20, or 30 years at a fixed premium. And while the premium is usually inexpensive, it can increase significantly if you want to renew and keep your same level of coverage.
Whole Life Insurance
Whole life insurance policies not only provide a cash payout to your beneficiaries after your death, they build cash that you can borrow against. Here’s what you need to know:
- They’re expensive. Whole life insurance premiums are significantly more expensive than term life insurance.
- They build cash value. Whole life insurance eventually builds cash value that the policyholder can borrower against. This might be helpful to debtors attempting to pay off high interest debts and avoid filing bankruptcy.
- The policy is permanent. Whole life insurance lasts for the policyholder’s entire life and the premiums do not change. As long as the policyholder makes payments a whole life insurance policy cannot be cancelled.
As long as the policyholder makes payments a whole life insurance policy cannot be cancelled.
While whole life insurance can help protect you from bankruptcy by allowing you to withdraw or borrow against the cash value, it’s risky. If you don’t’ repay the loan your loved ones may face financial hardship and bankruptcy after your death because you didn’t leave enough money behind to pay off priority debts such as a mortgage.
Choose the Right Term
Generally speaking it’s best to go with a long-term policy 20-30 years because the premiums just get more expensive the older you get. No matter what type of insurance policy you choose, go with the longest term you can get and you’ll save money.
Get Enough Coverage
Your life insurance is not a place where you want to get cheap. If you have dependants, choose a policy that will replace your income 8 times over. You want to give your loved ones enough money for burial costs and enough time to figure out how they’re going to replace your income or survive without it. This is especially important if you have a family home encumbered by a mortgage and debts that you hold jointly with your spouse. Even if you have life insurance, your family could be forced into bankruptcy if the cash payout isn’t enough to cover their expenses.
When choosing a policy that will protect your family’s financial future think about whether you want “living benefits” such as cash value and how much of a death benefit is necessary to help your family survive.
