Why you're not too young for life insurance
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Life insurance for millennials and Generation Z
Whether you’re just out of college and facing the challenge of repaying student loans or saving money for a major life milestone, such as buying your first house, life insurance may not be top of mind right now. You may even think that life insurance is reserved for recent parents or wealthy individuals with expensive assets. But you may be in one of the best positions to lock in a better deal when it comes to buying life insurance.
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What does life insurance cover?
There are several types of life insurance that each have their own potential advantages given your current life stage. The first type, permanent life insurance, such as whole life insurance, never expires if you keep your premium payments up to date — in other words, the coverage lasts for your whole life.
In addition to the guaranteed money1 your beneficiaries will receive when you pass away, whole life comes with an added financial benefit that you can use during your life, known as cash value. Whole life insurance grows in value over your lifetime and provides insurance protection now while also building cash value each year.2 Your cash value is insulated from market fluctuations — so it will be there when you need it. You’re doing this while maintaining the lasting financial protection of life insurance, and most importantly, it’s insurance that won’t ever expire if you make the premium payments. Your beneficiaries will get that money when you’re no longer here.
By comparison, there’s a second major type of life insurance, called term life insurance. With term life, the financial coverage lasts for a set amount of time — that chosen term — which can range up to 30 years. It’s initially more cost-effective and does offer your loved ones a form of financial protection. However, term has certain disadvantages. It doesn’t have a cash value benefit, and when your term is up, the life insurance coverage is up, too. While it provides financial coverage if you pass away before your term is over, when this coverage ends, you have no asset. To renew term life insurance when you’re older will typically cost much more and most likely involve taking a medical exam. Many people have both term and permanent life insurance coverage to help with protection and affordability.
The advantage of youth
Being young is a cost advantage. For a 30-year-old, the premium for a $500,000 Guardian whole life insurance policy is about $550 per month. For comparison, at age 40, that same whole life policy premium is about $785 per month, and at age 50, over $1,000 per month.3 For a 20-year term life policy, which costs less than whole life, the savings you’ll receive by signing up while you’re young could leave money available for other important expenses down the line. As an added benefit, you may be able to add more coverage as you go through life stages — without having to go through that proof of health process again. People tend to be less healthy as they age, so if you have any worries about that, it may make more sense to lock-in insurance early on.4
Caring for those around you
If you pass away and don’t have life insurance, some costs could become difficult for surviving family members. For example, the average cost of a funeral is $7,000 - $10,000.5 And if anyone, like a parent, has co-signed for loans or other types of debt you have — including some student loans — that person could be responsible for the debt, or related taxes.6 In addition, if you’re married and live in one of these states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin — your spouse could be on the hook for debts you leave behind.7
Building for the future
A whole life insurance policy can enhance your financial portfolio, as part of the range and diversification of products and investments8 that will help you as you age. Because you’re accumulating cash value over time, your life insurance policy becomes an asset that you can use for things like funding a new business, purchasing a home, or paying for education expenses.9 Even better, once the money is credited to the policy, that money is guaranteed by the insurance company and insulated from market fluctuations.
If you get your whole life policy from a mutual insurance company, you can share in the company’s success in the form of potential dividend payments, which you can collect as income, reinvest into your policy, use to offset future payments, or to purchase additional coverage.10 Also, the fact that your premium payments never go up for your whole life is likely to eventually make them seem relatively affordable. More than that, you’re covered by life insurance that can’t be canceled, as long as premium payments are made, and will leave guaranteed income tax-free money to beneficiaries (those people or charities you picked to receive your insurance money).
Your life to come
So how much coverage do you need? By one estimate, people in their 30s should consider covering 30 times their annual income — approximately the number of years of work ahead. That may seem a bit steep as you’re just starting out. You can consider starting with a term policy that can be converted to a whole life insurance policy down the road. But when you have so much ahead of you — career, partner, children, home, and more — shouldn’t you consider protecting yourself and your family accordingly?