Do you have a lot of debt? You might want to make this important life insurance change

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Purchase life insurance is a great way to protect the people who matter most to you. These people can be your spouse, your children or other loved ones who are an integral part of your life.

But sometimes the amount of life insurance you start with isn’t the amount you need. In fact, it’s common to need more coverage over time. And this is especially true if you end up racking up a lot of debt.

Why debt could be driving 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 house that required you to withdraw $400,000 mortgage. It’s not a financially unsound decision, as this mortgage could help you own an asset that can grow in value while putting a roof over your family’s head.

But still, it’s hard to argue that a $400,000 loan is a big amount of money to owe. And so if you end up with a lot of debt, whether in the form of credit card balances, auto loans, or home loans, it’s a good idea to evaluate your life insurance policy and see if it’s worth increasing your coverage.

Generally, if you are married, your spouse will be responsible for repaying joint debts in the event of your death. And even if you don’t have joint debts, your creditors may be able to sue your estate for debts they have in your name only, leaving your loved ones less expensive. But if you increase your insurance coverage after increasing your indebtedness, you could spare your beneficiaries that financial stress.

So suppose you purchased a life insurance policy with $500,000 coverage at a time when your debt was limited to a credit card balance of $2,000. 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 may find it difficult to keep paying. And that’s not a situation you want to put them in.

Pay off unhealthy debts

It’s a good idea to try to reduce your expenses and even increase your income to pay off unhealthy types of debt, like money you owe on your credit cards. But for something like a mortgage, expecting to pay it off quickly is unrealistic. In fact, there’s a reason 30-year mortgages are so popular: it’s because homeowners aren’t usually expected to finish paying off a home quickly.

But while you don’t have to rush to pay off a mortgage (or worry about owing money on a mortgage), it Is pay to increase your life insurance coverage if you purchase one or find yourself with a noticeable increase in debt. It could save your loved ones a world of financial stress in the event of an untimely death.

The Ascent’s picks for the best life insurance companies

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John A. Bogar