5 Unexpected Ways Life Insurance Can Help Your Family After You Die
- If You Haven’t Paid off Your House
- If You Co-Signed Loans or Credit Cards
- If You Racked up Unexpected Medical Bills
- If You Help Foot the Utility and Grocery Bills Each Month
- If You Pay Your Kid’s Daycare Bills or College Tuition
Anthony: Janice, before you start us off, I want to give a little bit of background because this is about kind of what life insurance can pay for after somebody passes away. I want to quickly go over the relationship between estates and debts. Is that alright with you?
Anthony: Okay. So, in most states, actually I think all states in the United States your heirs are not responsible for debts that exceed your assets. It’s like you went bankrupt upon death.
Anthony: They can’t make you pay … If I died with 100,000 in the bank, but I had $200,000 in credit card bills, they can’t make you pay the difference. Now there are exceptions to that rule. Like if you cosign something, if you are a guarantor, and the big problem is student loans have very special rules to them. Student loans don’t go away, so there’s gonna be a problem with student loans on the horizon. I think we all know that.
Janice: But they’re still not going away.
Anthony: Yeah. Yeah. Okay. So, with that sort of background in mind, Janice, can you cover the five unexpected ways life insurance can help your family after somebody dies.
Janice: Yes. I like the article because I think it’s well written. It starts out with dying isn’t cheap, which is unfortunate because you can’t even attend your own funeral. But isn’t that so true? Like it is really expensive. So, they’re talking about ways you didn’t realize that your loved ones could use your life insurance. There’s a death benefit. Could you talk a little bit about that [inaudible 00:02:13] on the insurance policy? So, when you pass and you can receive the funds from your life insurance.
Anthony: Sure, let’s talk about the most basic or common type of life insurance: Term life insurance. You pay 10, 50, 100 bucks a month for 30 years, and during those 30 years, if you were to die for almost any reason during those 30 years, then your beneficiaries will receive, I dunno, $100,000, $500,000, whatever you decided to pay for, a big cash payout of just money upon your death that you’ve paid for. And the reason this makes sense is because they charge premiums that mathematically make it based on your likelihood of … I mean, they don’t do this if you have risky behavior or if you have poor health. They choose people who are basically most likely going to live.
Janice: Right. Right.
Anthony: That’s how this works out. But, if anything goes wrong, if there’s any sort of disaster or accident, kind of unexpected kind of thing, then yes your family will have an influx of cash that, you just kind of fill out a few forums and bring a death certificate to the insurance company, and you will receive a check or a wire.
1. If You Haven’t Paid off Your House
Janice: So, the average American who purchased their home in 2017 with a 30-year mortgage, you’ve got a lot left. So, if your spouse or partner is left with that monthly expense without your income, what happens? But thankfully with a life insurance and the benefit that comes in, you can use that to either cushion it or paid off completely.
Anthony: So, when I spoke with Jason Lee a few months ago on this podcast, he did a great breakdown of how to choose how much life insurance you need, and he broke it down as life insurance should be really thought of as a replacement income. So, if you need from … Not you. But if my wife needs from me X number of dollars per month for the next 20 years to get our kids through college and maybe through grad school, then what would it take if you sort of dollar cost or do a discounted cash value down to a lump sum right now. What would that dollar amount be to get us to that point?
Anthony: And you just break … You go into the Excel, do the math, and you figure it out. And like you said, yeah, it can be a lump sum payoff of the mortgage. It can be enough to cover the monthly until. However, you want to figure it out, but just do the math and figure out what is needed, and then see if you can afford the insurance.
Janice: Right. And you’re making sure that, like in your situation, you said the wife, she’ll be okay, taken care of.
2. If You Co-Signed Loans or Credit Cards
Janice: So typically, the debt doesn’t die with you as you said, especially if you’re a cosigner. The creditors still want to be paid. So, depending on the terms, if you have a cosigner, that person’s now responsible. So thankfully, that death benefit can cover that.
3. If You Racked up Unexpected Medical Bills
Janice: Do you know how expensive medical carries with or without insurance? It’s expensive, especially if you’re talking about at the end. I mean, just do the math. They said now, on average, it costs $2,271 per day for an average hospital stay. That’s a lot. If you’re in there for a few days, a few weeks and then you pass, think of the medical bill that you’ll be left with.
Janice: So, there’s no surprise that medical debts are a really big issue in the US, but it’s nice that if you have this death benefit, this insurance, you can take care of that.
Anthony: There’s also the issue of Medicare and Medicaid claw back. So, you might qualify for Medicare or Medicaid depending on your situation and think, “Oh cool, the government finally did me a solid and paid off my bills or my dad’s bills.” Whatever the case may be. The thing is, there are certain types of treatments and certain types of services that, if they pay for that, upon passing, if there’s any money in the estate, they want to get paid back. It’s called claw back. It’s a great name, right? Claw back.
Janice: Right. Right. Kind of sounds a little-
Anthony: So, I mean if the estate is a house, and you don’t want to have to be forced to sell the house, then the life insurance can really help cover that to make sure that you’re not forced to do anything you don’t want to do.
4. If You Help Foot the Utility and Grocery Bills Each Month
Janice: You just said this before, when you’re factoring in how long … In factoring in your monthly income, for example, you used your wife, and you contribute each month. How much are you talking for grocery and utility bills so they can continue and be okay.
Janice: So, reality is paying the electric bill is sometimes, when you have two people on your income, you don’t really think about it, but then when you’re left with just one, that is a pretty big burden.
Anthony: Yeah. I was a little confused by this as a separate bullet point because it seems to be kind of covered under the same principles, at least have the first one, you know?
Anthony: But maybe this is specific to couples or households where they have really, really sort of segregated bills. I don’t know how you guys do it, but-
5. If You Pay Your Kid’s Daycare Bills or College Tuition
Janice: If your children go to daycare or college, college tuition. You have to think about that. Get a nice round number for what you pay each month for everything as if you were alive. What are you paying right now? Do the math, just like your friend had said, and that will help you determine what’s right for you.
Anthony: Yeah, I mean honestly, if you think about this, and Carson, this is a great article. You’ve covered these points very well. It kind of boils down to having more money when you die is good. Would you agree with that?
Janice: Yes. I would. I actually would even add on that having more money in general is good.
Anthony: Hey, we’re getting real philosophical here.
Janice: I know, right? It’s not a bad thing, but seriously it is right that you want to just make sure they’re cared for. And I say this every time that if you’re set up properly with an estate plan, with a reputable attorney that knows what they’re doing, this is something they’re going to help you factor in.
Anthony: And Carson’s right. A lot of these things sort of kind of come to a head when somebody passes away. These lump sum funeral bills, lump sum medical bills, or a sudden loss of income. Life insurance really cover those gaps.