Debt is a way of life for many these days. For a long time, loans were taken for something really important, such as a house, children’s higher education or a pressing medical emergency. However, unsecured loans are easily available today and are often availed by people to keep up with the trending lifestyles, which are usually not indispensable.

Being deeply in debt not only deteriorates ones credit worthiness but also other aspects of financial life such as saving for life goals. Being responsible for the financial security of a family member additionally puts them in a vulnerable situation too. You may be currently earning well and providing for your family. But what if something happens to you — the sole breadwinner? Can your family afford to maintain the current living standards? Given that you had outstanding liabilities such as home loan, car loan or personal loans, how do you think your family will repay all these loans?

Any debt you leave behind when you die can eat up the assets that you had hoped to leave behind as a legacy. In some cases, family members could even be on the hook for your debt.

Term insurance

In case you find yourself in the midst of a debt trap, a term insurance plan can come in handy and provide you with peace of mind.

It can adequately cover all your outstanding liabilities and financially protect the family in the case of an unfortunate happening. Without a term insurance policy, you leave your family in a deep financial distress. Your family will not only suffer emotional grief in your absence, but also be burdened with your debt.

Why you should not delay

Debt can be crippling. When you are burdened with debt, the last thing you wish is to add another expense. You would want to push-off purchasing a term insurance plan until you pay off your debts. This should be an ideal thought process while considering investing in any other financial tool. Term insurance, though, is altogether a different kind of purchase as it provides a significant life cover for a meagre premium amount.

Think about how much you pay each month for all your debt combined. Term plan premium will only be a fraction of it to make sure your family doesn’t inherit your debt.

Here are the four reasons why one should consider buying term insurance while still in debt.

• If your family financially depends on you

Term insurance financially protects your loved ones from your debt. It’s hard enough for you to deal with debt. And if you’re the sole breadwinner, imagine how much hard it’s going to be for your family to pay off the debt when you are not around.

Contrary to first impressions, life insurance shouldn’t be put off until you pay off your liabilities; it’s even more important to have it while you have that debt.

• Age is on your side, so is debt

It is better to buy term insurance sooner than later or else you will just be making it more expensive for the future. If you wait till you pay off all your debt, you’re going to end up paying a higher premium than you would have paid otherwise. Term insurance is a must-have product in your financial portfolio and it is advisable to buy it earlier than later.

• When in debt, budget for your term plan

Before you apply for term insurance, calculate your needs by adding up all your assets, your future aspirations and your debt on hand to make sure the coverage amount and policy period is enough to protect everything. Once you select a plan that best suits your needs with a premium amount that you are comfortable with, go-ahead and buy your term policy.

You might have to cut back on some discretionary spending or tighten your purse in other ways. Still, ensure that you go ahead and buy your term policy to financially secure the future of your loved ones.

• Continue paying off your debt

Buying life insurance to protect against debt isn’t enough. You also have to actually pay off your debt. You will have to manage your finances in a way to meet minimum monthly obligations on your debts and accordingly prioritise the repayments, keeping the cost of delay/default in mind. It might take some time for you to completely come out of the debt trap, but you need to stick to your planned strategy.

Remember, while you are on your path of clearing all your debt, term insurance will empower you with the peace of mind that your family will not have to deal with any financial liabilities in the case of your untimely demise. Any outstanding debt — a home loan, auto loan, personal loan, or a loan on credit cards — will be taken care of if you have a term insurance policy in your portfolio.

The writer is head of product development & management of Aegon Life Insurance