Death is not something people like to think about, especially when we’re young. It seems so distant. Many people have the “It can never happen to me” mentality. But what if an accident happened unexpectedly? How long would your spouse be able to pay the mortgage on one income? Would they make enough to support your children? What about if your children decide to attend college? Would you leave behind any debts? Would you have enough savings left behind to cover funeral costs?
One reason younger generations are more hesitant to buy life insurance is the price. Eight out of 10 Millennials grossly overestimate the cost and decide the probability of needing the insurance isn’t worth it. Let’s put this into perspective. Research shows that the average American pays $120 a year for cell phone insurance, but most 18-30-year-olds are unwilling to pay a little more than this for life insurance. For unmarried individuals without debt or children, funeral costs are probably the most important coverage needed for your family. However, once marriage and children are on the horizon, the risk becomes monumentally greater. You have more opportunities and reasons as a 20-something in the life insurance market than you realize.
Buy Life Insurance to Protect Your Family
Typically, your twenties are the time when settling down and starting a family becomes a higher priority. With marriage and cohabitation comes interdependency, as you combine your resources to purchase cars and a home, as well as pay the bills. What happens if you build your life with two incomes, then one suddenly ceases? What happens if the deceased was the sole source of income? Children are one of the biggest reasons why people should buy life insurance. Dependents come in many forms though. If you have student loans, they will fall to your next of kin (usually your parents). If an accident requires medical treatment, that will also fall on your family. At the very least, final expenses (such as funeral costs) are approximately $15,000. No one wants their family to experience financial hardship on top of their grief.
As a parent with children, you will want to secure term life insurance for as long as your children remain your dependents. The age could vary. At 18, they are officially adults. Yet, if they are full-time college students and unable to maintain a full-time job to support themselves, they will still be your dependents until age 22. So, before buying a term life policy, estimate how long you expect your children to remain your dependents. Did you know you can buy a whole life policy for your child as young as 14 days old? Doing so can save money by growing a cash-value component for the child’s college education or other future needs. Purchasing a whole life policy for your children at such a young age can also benefit them if they choose to work a high-risk job. The whole life policy can help them purchase additional coverage with lower premiums than had you not made that whole life purchase for them decades earlier.
Buy Life Insurance While You’re in Peak Health
Many younger people don’t fully understand insurance and believe they don’t qualify for it. Every year you get older, life insurance rates go up. This makes logical sense as your health starts depreciating somewhere in your mid-twenties, and your life expectancy is shorter. Although you are further away from death while you’re young, your health will lock in cheaper coverage rates. Rates can increase hundreds of dollars just from age 25 to 30. Locking in those cheaper rates is worth it in the long run, and it will save you thousands down the line.
One worry with a term policy is that once the term is up, the owner of the policy will walk away with nothing, and be on the hook for purchasing new life insurance at a higher premium. For example, say you purchase a 20-year policy when you are 25 for $600 a year. After the 20-year policy ends, you are now 45 and will have a higher premium to pay if you purchase a new policy. There is a loophole to this dilemma, not many people are aware of. Some policies have what is called a conversion privilege. This allows you to convert your term policy to a permanent policy that will provide coverage and a set premium for the rest of your life. The best part? It’s guaranteed regardless of your health. There is no health assessment when you convert your policy. This means your new premium will only be based on your age at the time of the conversion, not your health.
So, when should you buy permanent life insurance? Tax-deferred cash value grows in your permanent life policy. This benefit is the most significant feature of permanent life insurance. Not everyone can afford permanent life insurance’s higher premiums in their 20s. Most individuals are beginning their new careers at this age. Some have college degrees while others do not. So, for the 40-something who bought a term life policy in their 20s, converting your completed term life insurance makes the most sense. If you are well-established in your career and making a higher salary than entry-level employees, you should consider initially purchasing a permanent life policy. If you are 30, you should probably go this route as well.
If you have questions about which policy you should purchase, Empower Brokerage has friendly licensed insurance agents eager to assist you in making the best decision for you and your family. Call us today at (888) 539-1633.
Life Insurance Questions?
We hope that this information on buying life insurance before 30 is useful to you.
If you’d like to learn how we can help you plan your retirement, call Empower Brokerage at (888) 539-1633 to speak to one of our Life and Annuity experts or leave a comment down below.
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