Why you should buy life insurance when you are young

Video: Why you should buy life insurance when you are young

There are good reason you should buy life insurance when you are 20’s or 30’s and single, life insurance comes with a specific benefit for student loan borrowers

When you’re just starting out, life insurance may not be your first concern. Putting it off may cost you.

Research shows that millennials, who are saddled with hefty student loan bills, have struggled to set money aside for other purchases — from life insurance to buying a home.

On average, about 7 in 10 seniors graduate with debt, owing around $30,000 per borrower.

However, life insurance comes with a specific benefit for student loan borrowers: A policy that covers the amount owed to lenders can act as a way of protecting those loans from becoming a loved one’s burden.

Video: Why to buy life insurance in your 20’s

Though outstanding federal student loans are discharged when you die, that isn’t always the case with private loans. When a borrower with a private loan dies, the co-signer may be on the hook for subsequent payments.

About half of private student loan programs do not offer death discharges, according to SavingforCollege.com.

Or, like with outstanding student debt, if you took out a loan to start a small business, or any type of unsecured loan, that loan balance doesn’t die with you either. The lender can either size the collateral you used to secure the loan or eat up all of your assets to pay off the debt.

A life insurance plan can also provide the business with the resources to recover from financial losses in the event of an untimely death.

Generally speaking, life insurance makes sense whenever there are financial needs that could not be covered by your assets if you were to pass away.

How to find the right policy

Most financial advisors suggest young adults start out with a term policy to get maximum coverage for the least amount of money.

Term life insurance offers coverage for a set period of time, say 20 years or 30 years. Once the term has expired, the policy terminates, unless you renew it for another term or convert it to a permanent or whole life policy, which can be much more expensive.

Whole life insurance, on the other hand, offers coverage for the remainder of your life as long as you pay the premiums. These policies come with a cash value account that accumulates on a tax-deferred basis.

The cost of life insurance depends on how much and which type you get. It’s often less expensive than people expect.

A healthy 30-year-old man can expect to pay just under $18 a month for a 20-year term life insurance policy with a $250,000 death benefit, according to Policygenius, an online insurance marketplace. The average premium for a woman of the same age is about $15 a month.

A good rule of thumb is to aim for a death benefit that’s equal to 5 to 10 times your income. A financial planner can help you get a more accurate picture of the amount of protection you’ll need.

Life insurance will only get more expensive the longer you put it off. Insurance premiums rise by an average of 8% to 10% for each year you postpone buying coverage, according to Policygenius.

There are a wide range of offerings from MassMutual to MetLife. Small or medium-size insurers aren’t necessarily bad, but you do want to know that the firm has a good track record.

Find out about the company’s history in the life insurance business and check its record through the National Association of Insurance Commissioners’ database.

A number of websites will help you compare rates and buy policies through their sites, such as Policygenius.com, as well as sites that allow you to buy a term policy directly on their platform, like the start-up Fabric.

4 reasons to buy life insurance, even if you already have it through work

Around 60% of US workers have access to group life insurance as a benefit at work.

It’s a valuable benefit that employers often offer at no cost to employees. Plus, coverage is guaranteed so you don’t have to submit to a medical exam .

If you get life insurance for free through work, there’s no reason not to take advantage of it. But it still may not be enough, particularly if you have a spouse, kids, or other family members that rely on you for financial support.

Here’s why you may want to consider buying an individual life insurance policy too:

1. It’s probably not enough coverage
Group life insurance is broad and there’s no opportunity to customize your policy. Employers typically offer coverage amounts that are a multiple of your salary.

According to the Bureau of Labor Statistics , the median worker with access to group life insurance receives $200,000 in coverage. That’s a reasonable amount, but anyone with a family to support, debt to pay off, or big future expenses will likely need a larger death benefit .

2. You can’t add riders to your policy
You also can’t add riders to a policy you get through work. Riders are additional terms and conditions that enhance your coverage for specific situations. There are riders that allow you to accelerate the death benefit in the event of illness, get an additional benefit for the death of a spouse or child, or add more coverage for accidental death or dismemberment.

3. You can’t take your policy with you
Most group life insurance policies aren’t portable when you leave your job. While you may have the chance to convert it to an individual policy, you’ll have to pay the premiums your employer previously covered.

Since a group life policy is guaranteed coverage there’s no evaluation of your health, age, or overall risk to determine your premium it will likely be more expensive than an individual policy if you’re low risk (e.g. you have no major health conditions).

4. You may want a permanent policy

Most group life insurance policies are term , meaning they last for a set number of years and then expire. Financial experts often recommend term life insurance for most people because it’s affordable and acts as a safety net while you build up your savings, but it’s not the only option.

If you want to build cash value and/or leave money behind for your spouse, kids, or grandkids, a whole life policy could be a better fit. You may want to consult with a financial planner to see if it’s a good option for you.

4 people who bought life insurance in their 20s explain why they still think it was the right choice

Life insurance isn’t as intimidating as it sounds.

Life insurance usually isn’t top of mind for someone who hasn’t made it to their 30th birthday yet.

But it pays off to be ahead of the curve if you’re expecting to have a family to protect one day. Generally, the younger and healthier you are when you buy life insurance, the cheaper it will be , regardless of the amount of coverage.

In exchange for a monthly premium , a life insurance policy can replace income, help pay off debt , or provide a savings cushion for your partner or dependents if you die prematurely.

In a series of stories written for Business Insider, four average people explained why they decided to buy term life insurance in their 20s and why they’re still happy with the decision. Here’s what they said:

Clint Proctor bought a $500,000 life insurance policy shortly after becoming a dad and homeowner

When Clint Proctor and his wife became first-time homeowners in Florida and new parents within the same year, they decided it was time to protect their livelihood with a life insurance policy.

Proctor was 25 at the time and chose a coverage amount equal to about 10 to 12 times his annual income. His $500,000 term-life policy costs about $21 a month.

“If I die before my wife, I don’t want her to struggle to make our mortgage payment. She’ll have enough stress without having to worry about losing our home,” Proctor wrote. Now that he’s changed jobs and expanded his family, he plans to add additional coverage.

“Having life insurance gives me peace of mind that housing won’t be a concern for my wife and two boys. And that helps me sleep better at night,” he wrote.

Holly Johnson pays $50 a month for two separate life insurance policies totaling $1 million

Holly Johnson, an editor and freelance writer, bought her first life insurance policy in her late 20s. It cost $25 a month for $250,000 of coverage lasting 30 years.

Despite being debt-free, having above-average retirement savings , and earning some income from real-estate investments, Johnson later decided her family of four needed even more coverage. With an excellent health record, she took out another policy at age 37 and now pays about $50 a month for a total of $1 million in coverage.

“The reality is, having $1 million in life insurance coverage has allowed me to stop worrying about what would happen to my family finances if I died,” she wrote. “I never lose any sleep wondering how they would pay for my funeral or whether my kids will be able to go to college, and I never stress over how my husband might pay bills or care for our two children if he were to suddenly lose my income.”

4 people who bought life insurance in their 20s explain why they still think it was the right choice
4 people who bought life insurance in their 20s explain why they still think it was the right choice

Brynne Conroy bought a 20-year life insurance policy while pregnant with her first child

Brynne Conroy was pregnant with her first child in her early 20s when she decided it was time to buy a life insurance policy .

“As a parent, I knew it was only responsible to plan for the worst,” wrote Conroy, a freelance writer, author, and blogger. “If I passed away, I wanted there to be enough money for my baby to be comfortable for a few years until their new guardian was able to adjust to the changed circumstances.”

Because of pre-existing conditions, including a congenital heart defect, Conroy’s monthly premium came out to $64 for $200,000 of coverage on a 20-year term life policy. As her income has gone up and she’s expanded her family, she’s continued to increase her coverage amount.

“There is a great peace of mind knowing that if I pass away in my prime earning years, my children will be OK,” she wrote.

Eric Rosenberg bought a $1 million term life policy at age 28 and now wishes he had even more

Five years ago, before he had kids and a mortgage, Eric Rosenberg bought a $1 million life insurance policy to protect his future family.

He was in good health and locked in a rate of $78 a month for a 30-year term-life policy.

“I picked a $1 million policy because, based on our expenses and lifestyle at the time, it would have easily covered at least ten years of expenses not taking into account any investment gains on the proceeds,” Rosenberg wrote. “But now that I actually have two kids, I sometimes wish I could go back and get a bigger policy that would have paid for college and a full mortgage payoff as well.”


Still, he doesn’t regret preparing early. In the years since, Rosenberg got his pilot’s license and his father was diagnosed with cancer two risk factors that would have significantly driven up the costs of his premiums had he waited to buy life insurance.

“I hope my family never gets the $1 million,” Rosenberg wrote. “But if something happens to me, I’m not worried about my family struggling to pay the bills. That, after all, is what life insurance is all about.

Number of Americans with health insurance declined last year

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