A life insurance policy is designed to pay off any of your remaining debts when you die and could provide some great financial relief to your loved ones during a difficult time.
In Canada today, debt is considered to be just part of a normal life. You may go into debt to go to college, to buy a car, a home, or by constantly using your credit card to buy things that you think you need.
However, living debt-free can have many benefits and will allow you to have:
- the freedom to choose what you spend your money on.
- peace of mind.
- increased savings.
- relief from anxiety.
- increased financial security and health.
For many people, getting out of debt and not being held back by any financial obligations, such as loan payments, is a crucial first step towards living a fulfilling and enriched life.
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4 Common Causes of Household Debt and How to Avoid Them
A simple explanation is that debt happens when you spend more money than you earn - but it’s not really that simple when real life steps in. Many other situations such as unexpected events, bad planning, and even a decision to pursue an education, can leave you with a big debt that may take years to pay off.
By understanding the main causes of debt, you can then start to make better financial decisions to avoid it. Here are 4 main culprits:
1. Loss of Income
Maybe you were laid off or had a sudden decline in revenue for your business. Maybe you needed to stop working to care for an older relative, or perhaps your health took a turn and you were forced to drop down to part-time work. Whatever the cause, losing a primary source of income can severely hurt your bottom line and put you at risk of debt.
How to avoid this: When something like losing a job happens, it’s easy to find yourself overwhelmed by bills and expenses. To prevent debt you must:
- Keep an emergency fund. Ideally, this can sustain you while you try to replace your lost income.
- Live below your means at all times. This means spending more on ‘needs’ and less on ‘wants.’ This way, even if your income drops, you’ll find it easier to get by living on your current budget without dipping into your emergency fund.
2. College Costs
Going to college can be very expensive and many young people find themselves saddled with debt early on in their lives. In addition, these loans can force a new graduate into even more borrowing, which only adds to the debt cycle.
REMEMBER: Avoiding college debt may force students and parents to make some hard choices, but these will help a young person start their adult lives off on the right financial foot.
How to avoid this: There are several ways you can mitigate this burden, including:
- Parents can help their children with college costs by saving up with the help of a college savings plan or other similar programs that offer tax advantages.
- You may want to consider going to a state school or spending two years at a community college and then transferring to a four-year college.
- Getting a job while you’re at school, especially an on-campus one. Alternatively, there is no harm in deferring college for a year while you work to save some money.
3. Medical/Paramedical: Bills and Time Off Work
While Canadians benefit from a robust healthcare system, there are still areas where families lack coverage, such as vision, dental, orthodontics, prosthodontic, periodontal, prescription drugs, and certain psychological councilling services. For larger families where kids may need glasses, braces, and more, this can swiftly get expensive. Additionally, even in situations where medical treatment is covered by provincial health plans, time off work due to temporary illness or permanent disability can be financially devastating.
Two things you want to consider investing in are:
- Health insurance. While premiums may be expensive, facing illness without coverage can be costlier.
- An emergency fund. This savings cushion should ideally cover about 6-12 months of your living expenses. If the worst happens, at least you’ll have something to fall back on.
5. No Life Insurance Policy
Life insurance is a very important part of financial planning. You should always ensure that your policy will cover your family in case of an unfortunate event. No one likes to think of bad things happening to them, but without insurance, these sad circumstances can really hurt you financially.
Benefits of purchasing life insurance:
- it protects your family from financial worries in case of your death or severe illness
- your life insurance policy provides you with peace of mind, knowing your family will be taken care of
- it allows your family to live debt-free as they can use the insurance policy to pay off any outstanding loans such as your mortgage.
- it helps you create an inheritance for your children.
Secure The Right Life Insurance Policy Today
The team of licensed insurance agents at 20/20 understand the importance of protecting your family. We work with you to find the right life insurance coverage to give you total peace of mind, knowing that in life’s hardest moments, your family can live debt-free and financially secure.
Want to know more?
To find out more about our term life insurance policies and how we can help meet all your unique needs and protect your family financially, contact our licensed agents at 1-844-974-2020 or fill in our online contact form.
