Should I get life insurance in my 20s? If you’re fresh out of college and entering the adult world, paying off student loans or saving for an apartment is probably higher on your list of goals than buying life insurance. But there are plenty of good reasons to include it in your financial plan.
Getting life insurance while you’re still young usually means lower rates, more policy options, and the peace of mind that the people you care about are protected from unexpected financial challenges.
If you’ve been wondering whether it makes sense to buy life insurance when you’re in your twenties, you’re in good company. According to LIMRA, the number of people under the age of 25 taking out a policy has increased significantly over the past ten years, from 28% in 2011 to 38% in 2020.
So is it worth exploring the benefits of buying life insurance at a young age? Here’s what you need to know about buying life insurance in your 20s.
Should I Get Life Insurance In My 20s?
Life insurance is cheaper the younger and healthier you are. That’s because as you get older, you’re more likely to develop health problems that can increase coverage costs or even leave you uninsured. Is that reason enough to get a policy at age 20? Could be. But if any of the following apply to you, it’s probably a good idea to get a policy as soon as possible:
- You have children or a partner who, in the worst-case scenario, would like to support you financially.
- You do not want your family to pay for the funeral and burial/cremation costs.
- You have co-signed debts, such as a private student loan or car loan, that you don’t want your co-signer to keep in the event of your death.
- You’re maximizing your IRA and retirement plan at work and looking for additional tax-deferred savings options.
- You expect to need life insurance someday.
Age affects how much coverage you can afford, not only because coverage is cheaper, but also because you’re likely to be able to afford more as you get older. If you’ve determined that you need life insurance now, get a policy for a fixed term of years (usually 10, 15, 20, or 30 years) and an amount of cover that you can easily afford, even if the cover amount is lower. of what you need. When your finances improve, you can get a bigger policy that covers the rest.
Do you need life insurance at age 20?
Before shopping, take a moment to determine whether you need a policy. Most twenty-somethings would probably say no, but the answer is yes more often than you think.
Life insurance policies are there for the hypothetical moments. Protect anyone who would be financially affected if you die by giving them a cash payment.
If you have no debt to cover and are on a tight budget, it may make sense to hold off seeing insurance quotes. But if any of these are true, consider applying for life insurance:
You have a family (or want to have one someday).
If you are married or have children, life insurance is a must. If you die unexpectedly, the money from a life insurance policy will help you make up for your lost income, cover everyday expenses such as groceries and gas, and pay off any debts you may have. Even if you’re still single, getting coverage now can help lower your costs and ensure protection is there when you need it later.
You have student finance.
Investing in education can help you increase your earning potential throughout your career, but it often also means taking on significant debt. 70% of students graduate with about $30,000 in loans, according to Student Loan Hero. Your family can get in trouble with your school debts if something happens to you. While federal loans are generally waived on death, they can leave a heavy tax burden, and many private loan lenders do not have the option to forego on death.
You have a mortgage.
Have you bought your first house or apartment? If you don’t want to pass on these bills after your death, life insurance can help your family pay them later. The same goes for car loans, credit card bills, or other unsecured debts.
You want a way to cover your last expenses.
Funerals can be expensive, averaging $10,000 or more. It may seem too far in the future to worry about, but anything can happen, and it’s never too early to have a plan in place to keep the people you love from coming under financial strain.
Young Adult Life Insurance Benefits
When you’re just starting, life insurance can take a back seat to other financial priorities. But there are good reasons to buy a young life insurance policy:
It is cheaper.
In general, life insurance is much cheaper than people expect. 50% of millennials overestimate the average cost of term life insurance by up to 500%. That said, the rates will always be better if you’re young and healthy. At Fidelity Life, a healthy 27-year-old man can get a 30-year life insurance policy with $250,000 coverage starting at $29 per month, and that cost can be even lower per month if you decide to pay annually.
Your health is important.
Health problems are more likely to arise later in life and can make life insurance more expensive to qualify for or even prevent you from making a purchase. But if you take out a policy early, you can’t be denied coverage for health reasons that arise in the future.
Protection against job loss.
As of October 2020, 12.6 million (7.9% of the workforce) Americans will remain unemployed during the COVID-19 pandemic. Gallup also reports that 21% of millennials have changed jobs in the past year. Given these circumstances, many people are likely to lose coverage under employer-provided group life insurance policies. Unlike most employer-provided collective life plans, an individual policy stays with you throughout each job. Even if you are temporarily unemployed, it is still possible to take out life insurance.
Types Of Life Insurance – Should I Get Life Insurance In My 20s
Insurance policies are generally divided into two categories: term and lifetime. This underestimates the diversity of insurance products available to consumers, as there are many different types of term insurance and many different types of permanent insurance.
Term Life Insurance
Term life insurance is designed to cover a specific set of possible events over some time. For example, a level life insurance policy can provide $200,000 of coverage for 20 years and cost $20 per month until maturity. A beneficiary is named on the policy and will receive the $200,000 if the insured dies or is seriously injured. For a 25-year-old with little debt and no dependents, this type of term life insurance is often not necessary.
Some term life insurance policies provide a refund of premiums, reduced fees, and costs if the insured survives the policy. This is called term life insurance and is usually more expensive than fixed-term policies.
Term life insurance is a convenient option to cover some type of financial liability, such as a mortgage. The face value of an expiring term life insurance policy decreases over time, usually because liability is expected to decrease over time, such as when the mortgage is paid off. Even some 20-year-olds may have insurable obligations, meaning there may be an argument for a policy with diminishing terms.
Term policies are always cheaper than permanent policies for the same coverage. This is because they expire at the end of the term and do not build up cash value or livelihood.
Permanent life insurance
Unlike term life insurance, permanent life insurance offers more than just a death benefit. Permanent life insurance offers the opportunity to build cash value, and cash value works better for 20-year-olds than it does for 50-year-olds.
The different types of permanent life insurance include whole life, universal life (UL), variable life, and indexed universal life (IUL). The differences mainly focus on how aggressively the cash value of the policy grows; life insurance policies tend to be the safest and most conservative, and variable life insurance policies tend to be the riskiest and most aggressive.
Any form of permanent life insurance can be profitable for a 20-year-old, assuming you can afford the policy, which typically costs hundreds of dollars a month. The policy will still provide a death benefit, But the cash value can be very useful, even if the death benefit doesn’t kick in for decades.
Permanent life insurance policies can be structured to pay out in full after a period of ten or twenty years. And then the coverage will remain in effect for life.
What Kind Of Life Insurance Do Young Adults Need?
For most people in their twenties, term life insurance is the right choice.
Term life insurance offers flexible protection for some time at affordable prices. You can choose the length of the term, usually 10 to 30 years, and the amount of coverage that best suits your needs. In your twenties, it often makes sense to have a 30-year policy in place so that you don’t have to buy again later if you still need coverage.
In some cases, however, a permanent life can be more meaningful.
Permanent life insurance gives you live coverage, offers higher amounts of coverage, and may have an additional cash value component. While it usually costs more than term insurance, you can rest easy knowing that you’ll always have that protection on hand if you have lifelong needs, such as a child with a disability.
Understand Cash Value
Present value is an interesting and important feature of permanent policies; Many insurers refer to cash value as part of a “living benefit” rather than a death benefit. As the insured earns money, a percentage of the premiums remain in the policy and interest accrues. This money can later be used to pay for other life events such as weddings, home purchases, children’s education, and even vacations. Most importantly, this money generally grows and is generally withdrawn without creating a tax liability.
Even low-interest life insurance policies can provide a healthy cash value dividend. This dividend can be collected or used to increase cash value. It’s conceivable, but not guaranteed, that permanent life insurance can significantly increase retirement income, get you back tax-free, or even allow you to retire earlier.
SHOULD I GET LIFE INSURANCE IN MY 20S – FAQ
How can you pay for insurance?
A cash value that accumulates over decades can add up to hundreds of thousands of dollars in future tax-free income. This can be an important aspect of a comprehensive retirement plan, especially if you already plan on maxing out an IRA. This strategy only works if the premiums are paid consistently; Permanent life insurance policies expire if the cash value is too low, leaving the policyholder without coverage.
Do I need to take out long-term life insurance when I’m in my twenties?
If you plan on starting a family one day, getting life insurance before you get married can save you money in the long run. This is because insurance premiums are cheaper when you are younger and healthier. Even if you don’t plan on starting a family, things can change. You may also want to consider insurance if you have large debts or other outstanding obligations that have nothing to do with family matters.
Do I need life insurance at age 20?
If you don’t have a family or don’t plan on starting one, you may not need life insurance in your 20s.
Is it better to take out term life insurance or full life insurance at age 20?
Since insurance is cheaper at age 20, it may make sense to consider a permanent policy for your entire life. This cover lasts until you die, regardless of your age. You can consider structured lifelong plans such as 10 or 20 payment policies that are fully funded after only ten or twenty years, and then you are covered forever. Also, lifetime policies will start to build cash value that increases over time as dividends are credited. You can borrow or withdraw against this money while you are still alive with tax benefits.
A term policy may expire while you still need coverage if you buy it when you are young, forcing you to buy an additional, more expensive term policy later when you are older.
Conclusion – Should I Get Life Insurance In My 20s
Even if you can’t afford permanent life insurance, most 20-somethings can get very good term policies for a very low cost, such as $200,000 to $300,000 in coverage for $15 to $20 a month in some cases. More importantly, some term policies can last 20, 30, or 40 years; you can be covered for your entire working life at a very low cost.