I Have Debt. Is Life Insurance Right for Me?

woman on computer i have debt is life insurance right for me

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If you have any student loan debt you co-signed with a loved one or other debts from auto or mortgage loans, life insurance can help you achieve your financial goals.

Getting life insurance while you’re young and healthy means you get the most affordable rates – most individuals will qualify for a policy for as low as $20/month without the need to take a medical exam.

A life insurance policy to pay off debt

Life insurance can help you eliminate other types of debt beyond student loans. If you have any debt that would be left to a co-signer or loved one if you pass away, such as a mortgage, home equity loan, credit card debt, or auto loan, having a term life insurance policy could ensure that they aren’t left with these debts when you’re gone.

With term life insurance, you can customize a policy to meet your needs, with a coverage amount that aligns with the debt you’re carrying to protect your loved ones from any unexpected expenses.

What kind of debt can be paid off with life insurance?

If you pass away while your policy is in force, your chosen beneficiary will receive a lump sum death benefit. With this money, they can pay off any of your remaining debts. The money they receive is a lump sum, tax-free payout that they can use at their discretion.

Most beneficiaries use this payout to cover the policyholder’s remaining medical expenses, pay off debts, and even cover funeral costs.

Which type of life insurance is best for people with debt?

For most people, a term life insurance policy is the most affordable type of coverage with the most customization available. You can choose the death benefit amount, the length of time you want to be covered, and you can add riders to your policy for additional benefits.

One popular option is the return of premium rider, which could provide a full refund of the premium payments you made during the life of your policy if you are alive at the end of your policy term. While this rider would slightly increase your monthly premiums, you would gain peace of mind knowing that you would get a full refund if you outlived your policy.

Another useful policy add-on is the disability income rider, which can offer “paycheck protection” if you are injured or face a sudden diagnosis that leaves you unable to go to work. This way, you could continue to pay rent, a mortgage, and maintain student loan payments while focusing on your recovery.

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Learn more about Quility’s Debt Free Life plan

Are you carrying a significant amount of debt from student loans, auto loans or a mortgage? Learn how Debt Free Life can help you become debt free with expert guidance every step of the way. Even better, you won’t be spending any additional money each month. It’s a win-win! Find out more here.

Can creditors go after life insurance proceeds?

There are very few instances in which a creditor could come after the life insurance proceeds that are paid to your beneficiary. Life insurance benefits are exempt from creditors and are paid tax-free to your beneficiary, meaning that they can use that money to finalize your estate without worrying about being contacted by a collection agency or creditor. The catch is that once your beneficiary receives the payout from your policy, their creditors can access that money.

It’s important to have discussions with your beneficiaries to get a plan in place when you purchase a policy and to name contingent beneficiaries who will receive the payout if your primary beneficiary passes away.

Contacting your beneficiaries when you purchase your policy ensures that they know they are listed on your policy and that they understand how you prefer the payout to be used if needed.

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.

Quility partners with more than 80 insurance companies to give you the power of choice when it comes to shopping for insurance. We work with top brands including American Amicable, Foresters Financial, Mutual of Omaha and more. These companies offer a variety of products, ranging from term life to universal and whole life policies.

By partnering with more than 80 companies, we can shop around to find the product you need at the best price for your budget.

Let’s get a policy in place today — visit our ten-minute online application for term life insurance to get started!

Let’s Get Started

If you are ready to get coverage now, our online application takes less than ten minutes.

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Calie Brummer is a staff writer and Head of Digital Communications at Quility Insurance with a focus on financial well-being and life insurance solutions.