When you’re just starting out into the world and are still young and healthy, life insurance may not be your main concern, but putting it off may end up costing you.
What is Life Insurance?
Life insurance is a binding contract between an insurance provider and the purchaser, in which they agree to pay a small monthly premium in exchange for the insurance company’s commitment to pay a lump sum amount to a person or persons of your choice upon your death. The money that the insurance company agrees to pay is commonly referred to as the death benefit, and the person who receives the money is referred to as the beneficiary.
The Many Benefits of Life Insurance for Young Adults
Life insurance can provide financial benefits. It can replace the loss of income for your family or loved ones to provide for your spouse or children who depend on your paycheck to cover their day to day expenses.
When you are in your 20s or 30s, you’re more likely to be single and childless but, that doesn’t mean you’ll stay that way forever. At some point, you may decide to settle down and start a family, and the appeal of life insurance may become apparent. If you wait until that point in your life to buy, you could be paying much higher premiums. As a general rule, life insurance for young adults is less expensive the younger you are when you purchase it.
Research shows that millennials have struggled to set money aside for major purchases from buying a home to investing in the proper amount of life insurance coverage. In addition to replacing lost income, life insurance can also be used to pay off any debts owed by your estate. In your 20s, your most substantial debt is most likely student loans.
Millennials graduating from college in the class of 2018 have an average student-loan debt of $29,800. Federal student loans are currently discharged when the borrower dies, but that isn’t always the case with private loans. If a borrower with a private loan dies, any co-signers may be left legally obligated to pay off any remaining payments.
Life insurance can also reduce the financial burden of paying for any funeral or burial expenses. The National Funeral Directors Association puts the average cost of a funeral at $8,755, while cremation costs about $6,260. A life insurance policy is an excellent investment if you don’t want to burden your family or loved ones with theses unnecessary financial debts.
Generally speaking, life insurance coverage makes sense whenever there are financial needs that would not be covered by your assets, or could become a financial burden for your loved ones if you were to pass away.
How Much Does Life Insurance Costs?
The cost of life insurance is dependent on several different factors, including how much coverage you need, and which type of insurance is the best fit for your financial situation. Overall, it’s often much more affordable than people expect.
A healthy, single 30-year-old male can expect to pay about $10 to $15 per month for a 20-year term life policy with a $250,000 death benefit payout.
A general guideline is to provide a death benefit that’s equal to 5 to 10 times your annual income. Speak to your financial planner or an experienced life insurance agent can help you get a more accurate picture of the minimum amount of coverage you should provide.
Your Age Determines How Much You Pay
Life insurance gets more expensive, the longer you put it off. On average, insurance premiums rise by about 8% to 10% for each year you put off buying coverage. Your rate is fixed when you take out the policy, and it will not change throughout the term of the policy, but, as you age, the cost of purchasing a life insurance policy increase. It is estimated that for each year that you delay buying a life insurance policy, the cost of premiums can increase by 8-10%, people in their 40s can expect to see rate increases of 5-8% each year that they put off purchasing coverage, and people in their 50s may pay as much as 12% more in life insurance premiums for each year they delay. So, your best bet to lock in at today’s cheaper rates and purchase your insurance policy while you’re young and still in good health. By doing so, you can get the same amount of life insurance coverage at a significant discount compared to what you will have to pay when you’re older.
How to find the right policy
Term life insurance provides coverage for a set period of time, typically 20 years or 30 years, and when that term expires, the policy will terminate, unless you renew it for either another term or convert it into a permanent or whole life policy.
Whole life insurance, on the other hand, offers coverage for the remainder of your life as long as you pay the premiums and keep the policy active. These policies come with a tax-deferred cash value account that accumulates over time.
There are a lot of options to choose from when purchasing life insurance to protect your loved ones. Your age and personal situation will dictate what the most appropriate coverage is for you.
When shopping for life insurance, use a reputable agency and do your own research the company’s insurance offerings. You can also check the company’s standing through the National Association of Insurance Commissioners’ database. Also, it’s a good practice to review your life insurance choices every few years or anytime your family situation changes, especially the amount of the death benefits, and who the beneficiaries are for each policy.
Contact your financial advisor or a licensed life insurance agent to discuss your best options when deciding on your own insurance needs and shopping for your coverage. Above all, don’t fail to protect your loved ones by not providing life insurance benefits just because you think it will cost too much. Your coverage could be very affordable and will provide peace of mind at a very affordable rate, especially when you are in your 20s or 30’s.