Should I get life insurance in my twenties
Think you’re too young to buy life insurance? The quick answer is: you are not. On the contrary, buying life insurance as a young adult can mean affordable annual premiums and the opportunity to build cash value.
It’s also a good idea to get life insurance in your 20s if you have dependents or someone is relying on you financially, have big debts, or want to secure a good rate.
Keep reading to learn more about when it makes sense to get life insurance in your 20s.
Life insurance in your twenties
You probably think that a life insurance the policy is only worth it if you have relatives who are financially dependent on you. And you’re not wrong. Nonetheless, buying life insurance as a young adult is a wise financial decision that can translate into lower premium rates. And for those with a whole life insurance policy, it could also mean affordable premiums with high income from the cash value component.
According to Life Insurance Market and Research Association (LIMRA), most Millennials (aged 24-41) find life insurance policies unaffordable. Others think they are unlikely to be approved after the underwriting process, which usually includes a medical exam. However, according to LIMRA, Millennials are in their prime life stage for life insurance coverage.
Additionally, the pandemic has changed the way Millennials view life insurance. A recent LIMRA study reported that in 2022, 44% of Millennials said they were more likely to buy coverage in the next year due to COVID-19. Yet only 45% of millennials have a life insurance policy.
Should I get life insurance in my twenties?
You should buy life insurance if you are a healthy young adult who wants a lower insurance premium with a generous death benefit. Companies often offer cheaper life insurance premiums to younger people who are healthy and without pre-existing conditions.
If you’re a young adult and still hesitating about getting a policy, check out some of the reasons to buy life insurance in your twenties:
- Easier coverage approval
- Reduced insurance costs
- Protects your family from having to cover your unsecured or co-signed debt
- Additional monthly expense
- You could get higher income from other investments
- A whole life policy will lapse if you don’t pay monthly premiums or repay the cash value
Buying a term insurance policy in your twenties doesn’t mean you’ll be stuck for the rest of your life with the same amount of death benefit you can afford now. You can purchase a 20-year term life insurance policy and increase your death benefit after your policy expires.
Some companies offer term insurance policies that can be converted into whole life insurance policies. Let’s say you’re interested in a term life insurance policy, but are concerned that you’ll miss out on the cash value component of a permanent life insurance policy. In this case, some companies like New York life to offer term convertible into whole life policies without further medical examinations.
When to buy life insurance
The sooner you take out life insurance, the better.
With a life insurance death benefit, you can protect your family’s financial future in the event of premature death. Additionally, a life insurance policy can help pay off your debt with a co-signer (for a student loan, for example). Likewise, the tax-free death benefit can cover any unsecured debt like credit cards, personal loans, or student loans that you leave behind.
What your beneficiaries do with the death benefit is up to them. In most cases, life insurance companies offer three ways to pay out the death benefit:
- As a single lump sum payment: the entire death benefit will be paid in a single payment
- In the form of installment payments: the death benefit is kept in an account that earns interest and is paid to the beneficiaries in a series of monthly installments
- An annuity: the death benefit is invested by the insurance company over the long term on a tax-deferred basis, and it is paid in monthly installments that are meant to last for the rest of the beneficiary’s life
Because term life insurance and whole life insurance offer different benefits, it’s important to understand each coverage before purchasing a policy. Take a look at our term life insurance vs whole life insurance analysis to select the policy best suited to your needs.
Types of life insurance: term and whole life policies
Term life and whole life insurance policies provide a death benefit to the insured’s beneficiaries. However, these policies have their own advantages and disadvantages.
Term life insurance
- Term life insurance only lasts for a fixed period and the death benefit is paid to the beneficiaries after the death of the policyholder
- A term life insurance policy has no cash value
- Insurance companies typically offer terms ranging from 10 to 30 years, with some offering 1 to 5 year renewable policies
- At the end of the term, the policy lapses and the policyholder is no longer covered
- Term life policies tend to have lower annual premiums than whole life policies, which is a good option if you’re looking to buy cheaper life insurance
Whole life insurance
- Whole life policies are permanent and the policy lapses when the policyholder fails to pay the premiums or has taken out a loan that exceeds the cash value.
- You can use cash value to cover premium payments or borrow it (like a loan) for emergencies
- Any outstanding loans taken from the cash value will reduce the death benefit of the policy
- Loans must be repaid, usually with interest
- Permanent policyholders could receive annual contributions*
*A cash value component is an investment feature of a permanent policy that can earn interest and grow. Remember that the cash value is a living benefit and the life insurance company will keep it when you die.
*Dividends are the additional funds that life insurance companies return to their policyholders at the end of each year.
Entire and temporary policies offer life insurance no exam, benefiting those who do not want to go through the hassle of medical examinations. Companies like Ladder offer term policies with laddering, allowing customers to increase or decrease their coverage at any time based on their financial needs.
Benefits of buying life insurance in your twenties
The main benefit of getting life insurance in your twenties is having access to cheaper premiums and a higher chance of coverage approval.
Additional benefits of buying life insurance in your twenties include:
- Earnings with higher cash value that can be used to pay debts, unexpected expenses or as a down payment for a mortgage
- Have your final expenses covered
- It serves as an additional tax-deferred option in addition to an IRA or a maximized retirement plan
Summary of Money’s Should I Get Life Insurance in My 20s Review
Buying life insurance in your twenties is a good option if:
- You want to leave enough money for your family to be financially secure
- You want your final expenses covered
- You want to lock in lower premiums and save money in the long run
Before purchasing a policy, it is important to familiarize yourself with the types of life insurance: term and permanent. It’s also a good idea to get a life insurance quote to see if a policy can be part of your financial plans.
For young people in their twenties who are interested in life insurance, it is important to first consider how much coverage you need and how long you want to be insured. Waiting to buy life insurance later in your life will mean higher premiums and less chance of coverage approval.