Purchasing life insurance can feel like a daunting task. But it is an easy and smart way to ensure that your loved ones can cover your debt if you pass away. If something tragic happens to you, your cosigner will be stuck paying off your student loans, as well as any other debts you have incurred. Getting a life insurance policy in place can help you worry less, knowing that your debt won’t fall on the shoulders of your loved ones.
Financially protect your cosigner from your student loan debt
Unlike federal student loans, private student loans are usually not forgiven if you die. These types of loans can require a cosigner who would become responsible for paying off your debt when you pass away. If a parent, relative or other loved one cosigned your student loan, a life insurance policy would financially protect them from inheriting your debt.
Cover other debts that could be passed on
In addition to student loans, you may also have other types of debt that would be left to a cosigner or loved one if you pass away. If you have a mortgage, home equity loan, credit card debt or auto loan, your financial responsibilities could become a burden to those who would be responsible for them. A term life insurance policy would allow you to customize your coverage amount and term length to cover your specific debts.
Money goes to your loved ones
In most cases, creditors cannot take the death benefit from your life insurance policy. If you pass away while your policy is in force, a death benefit is paid by the insurance company to your beneficiary and creditors cannot take it from them. Since life insurance benefits are exempt from being seized by lenders, your beneficiary can use the money at their discretion, for example, to pay off your high interest loans first or to cover the mortgage if they are living in your home. You can gain peace of mind by selecting a beneficiary you trust to make smart financial decisions with your life insurance payout.
Pay lower premiums when you buy early
Life insurance premiums are based on your age and overall health at the time you apply for coverage. If you secure a policy while you’re young and healthy, you will lock in an affordable monthly rate for up to 30 years. For most people, applying for a term life policy when you are paying off student loans is a great way to get the protection you need at a rate that fits your monthly budget. Term life insurance policies start at less than $20/month.
Add riders for additional benefits
Riders, or policy add-ons, often provide living benefits that can help you safeguard your income or refund your premium payments. One popular option is a disability income rider, which provides payouts if you are unable to work due to an illness or injury, helping you continue to make your monthly student loan payments. A disability can occur at any age; the Social Security Administration reports that one in four 20-year-olds will become disabled before reaching retirement age.
In addition to disability income protection, you can also opt for a return of premium rider, which can provide a refund of your premium payments if you do not need to use your life insurance coverage by the time your term expires. This rider is ideal for younger individuals who are looking for a cash-back option later in life.
If you have a term life insurance policy to protect your loved ones from your debt, you are off to a great start! As you get closer to paying off your student loan, you can either adjust your policy or, instead of purchasing one life insurance policy, you can use the ladder strategy. This is a strategy that allows you to “ladder” policies – you would purchase several term life insurance policies with different term lengths to cover different stages of life, leading to more affordable rates and ensuring you are paying for the right amount of coverage as you pay off your debts.
The bottom line
A life insurance policy can provide a payout to cover your debt, and it can help you secure your financial future by adding riders and locking in a low rate for years to come.
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