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Life insurance is important, but should you buy when you are in debt?

When finances are tight, the last thing you need is a new way to spend money.  I get it.  So if you are in debt and struggling, is that the time to go out and buy life insurance?  Wouldn’t it be better to wait until things settle down?   The answer is “yes and no” but probably not for the reasons you think.

First, let’s be honest with each other. If you need life insurance, you need life insurance.   It doesn’t matter if you are flush or not.  The truth is, if other people depend on you financially, you have an obligation. Many times, life insurance is the cheapest way to fulfill that obligation.  Simple as that.

Usually “waiting until things settle down” doesn’t work because they rarely do.  Chances are good that once you get out of debt, you will get busy with something else.  That’s the way most of us operate.

And kicking the can down the road doesn’t work for another important reason; you never know when your time is up.  It’s not fair to put your risk on your loved ones.  I discovered this when parents died unexpectedly before I graduated high school.  That’s why this topic is really close to my heart.  Nobody can predict the future and this is why people buy (or should buy) life insurance in the first place.

What if you absolutely don’t have the money?

After providing food and shelter, having life insurance is your next most important financial goal, again, if you need it at all.  But if you don’t have the dough to put a roof over your family’s head or to keep them fed, then delay buying insurance.

If you are able to provide these basic necessities, life insurance comes next.  Why?  Because if something happens to you, the insurance will deliver the support you won’t be around to provide.  In other words, if your family would go without a home or support if you were gone, you need the coverage.

And if you have to forgo some of your creature comforts, it’s probably worth it.  Even if you have to slow down your debt payments that might be the best choice if by doing so you can afford life insurance.

Life Insurance – Yes.  Expensive Insurance – No.

You may need life insurance but you may not need the expensive kind that many insurance agents try to elbow you into buying.  Depending on your situation, be very careful about buying whole, universal or variable life insurance.  These are very expensive and provide only a fraction of the coverage you may need.  This is especially important when it comes to people who are on a tight budget.

If you are struggling to make ends meet you really need to get the most coverage for the least premium and term life is usually way to get that done.  And even if you have term, you might be able to get it cheaper.  Here’s how.

First, get a quote every couple of years.  Generally, insurance gets pricier as we age.  But since people are living longer and longer, life insurance companies have dropped rates on many policies over the last several years.  If you are an old-timer like me, this won’t impact you.  But if you are a youngster (early 40’s or younger) and bought a policy a couple of years ago, it’s possible that you could buy the same coverage for less money right now.  It’s not true for everyone of course, but it doesn’t cost a thing to find out.

Next, find out if they offer group life insurance at work.   Many times, employers offer very inexpensive life insurance to employees. This is usually far cheaper than anything you could buy on your own.  Make sure to inquire about that.

Also, don’t be a wimp.   If you are healthy, get a full exam policy.  Some people buy no-exam life insurance in order to save time or get the insurance without taking a physical.  I understand the sentiment but this coverage usually costs a lot more. Sometimes the only way to get insurance is to buy a “no-exam” policy but if you can avoid it, please do.

Last, if money is super scarce, buy shorter-term insurance.  I typically recommend that people buy 30-year term if they can, but if you need to watch every penny, buy a one-year renewable policy to start off with.  Then, when your situation stabilizes, you can probably convert it into something that is longer-term.

If you are in debt, I applaud you for being super focused on solving that problem. It’s great to go through your expenses and cut every possible non-essential until your financial ship stops taking on water.   While the life insurance you currently have may not be the best or least expensive option, having the right insurance at the right price is essential and a non-negotiable way to protect your family.

Do you see it differently?  Do you think it’s OK to do without life insurance when times are hard at home?  Why or why not?

Neal Frankle is a Certified Financial Planner ® in Los Angeles and chief editor of Wealth Pilgrim.com, CreditPilgrim.com and MCMHA.org