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Is Ramsey right that buying coverage is crucial in this situation?
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There are many different reasons to buy life insurance, and most people should have a policy in place. In fact, anyone who has loved ones who rely on them to provide services or income should have term life insurance.
For some people, it may be especially important to buy coverage though. In fact, finance expert Dave Ramsey says it’s crucial to have a life insurance policy in one particular situation.
Here’s when Dave Ramsey believes life insurance is essential
Although Ramsey recommends life insurance for most people, he believes consumers “need it all the more,” if they have debt.
“Listen: If you have debt, you still need life insurance,” Ramsey said. “A lot of people feel like they should wait until they’re debt-free to buy insurance, but this would be a giant mistake.”
Ramsey explained that people are “most vulnerable” in circumstances where they owe money because they have this outstanding obligation that would need to be dealt with when they die. “Think about it, if you died and left your family with nothing to live on and a mountain of debt, how would they get by?” Ramsey asked.
Because of the risk of leaving loved ones with a lot of creditors to pay back, Ramsey believes it is worth paying the premiums for a policy even if that means it would be necessary to pay less to creditors since this money would be going to a life insurer instead. Even though it takes a little more time to become debt free, loved ones would be protected from the debt — and that’s worth it.
Is Ramsey right?
Ramsey is right that debt can sometimes cause surviving family members problems — but that’s not necessarily always the case.
When a person dies, their family doesn’t necessarily assume their debt obligations. If there was joint debt, such as a shared mortgage or car loan or personal loan, then surviving co-borrowers would need to continue to make payments. Likewise, if a deceased person had secured debt, such as a car loan, surviving family members would need to pay off the loan in order to keep the vehicle.
But if there was no collateral for the debt and it wasn’t jointly owed, creditors could come after the estate — but not after surviving loved ones. If there is money in the estate to pay off the debt, then surviving loved ones would lose those assets from their inheritance. But if there wasn’t money in the estate, then creditors just wouldn’t be able to collect. They can’t try to make heirs pay out of their own pockets.
Still, in many circumstances, it is definitely better to have life insurance to pay off unpaid debt — especially because often people die with joint loans or because they want their money to go to heirs instead of to debt payoff.
So, Ramsey is mostly right, but simply having some credit card bills doesn’t necessarily mean it’s absolutely necessary to go out and buy a life insurance policy if doing so doesn’t otherwise make sense. Think about the big picture when deciding how much coverage, if any, is needed, and consider debt as just a part of that decision to make the most informed choices.
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