When you’re young and just finding your way or establishing a career, you may be tempted to skip life insurance. It’s an expense that you won’t experience a benefit from, so it’s hard to justify the premium.
Can you get by without it? Maybe, but is skipping it a good idea? Maybe not.
We’ll cover the types of life insurance for young adults and give you the information you need to decide if it’s right for you and if it is, which type is best.
What are the different types of life insurance?
There are two main types of life insurance: term and permanent. They’re similar in that you pay a premium for each and receive a death benefit from each, but they have several differences.
Term Life Insurance
As the name implies, term coverage offers a benefit during its term. If you’re 20 years old and purchase a 30-year-term policy, as long as you pay your monthly premiums, your beneficiaries will receive the payment of your insurance policy if you were to die, until you hit 50 years old. That’s when your term expires and at that point, there is no benefit.
When a term is over, the policy has no continuing benefit.
Term coverage is less expensive than permanent coverage. In fact, healthy people in their 20s can usually secure a $250,000 policy for under $20 a month.
Permanent Life Insurance
There are several types of permanent life insurance coverage:
- Whole/Ordinary – Whole life has a death benefit as well as a permanent monetary savings account benefit that grows with time.
- Universal/Adjustable – Universal is similar to whole life insurance but with more flexibility. You may be able to raise your coverage benefit, and once you build up your savings, you can use that to pay your premiums for a period of time.
- Variable – You invest your savings account money with variable life insurance. If your investments do well, your account will grow, but if they do poorly, your account will shrink. Some policies’ death benefits are also affected by your investments.
- Variable-Universal – This is a combination of variable and universal policies. You invest your money but you can increase your benefits.
Permanent life insurance is more expensive than term coverage. Some argue that you’d be better off purchasing a term policy and investing the difference. That takes discipline, though, and so for some people, a permanent policy offers both a death benefit and a forced savings program.
Do you need life insurance?
Typically, people argue for life insurance by saying you need to provide for your children if something happens to you.
If you don’t have children, you might believe you don’t need life insurance because you don’t need to provide for anyone, but there are more reasons life insurance is important.
If you have any kind of debt, someone will be responsible for it if you pass away. If you’re not married, your parents will probably be left with your debt. Federal student loans are forgiven if you die, but private loans often aren’t. So, if you have student loans that will need to be paid even if you die, you should purchase a life insurance policy.
If you have any other debt, like a loan to start a business, you should have a life insurance policy so that no one is left responsible for that debt if you pass away.
If you have no debt and no dependents, you really don’t need a life insurance policy. Still, if you think you’ll have dependents in the future, getting insurance in your 20s isn’t a bad idea because the younger you are, the cheaper the policies are. Life insurance premiums increase as you age.
How much does life insurance cost?
Insurance is always based on risk. Take car insurance, for example. If your driving history indicates that you present a higher risk of being involved in a crash, you’ll pay higher premiums. Insurance companies have to make more money than they pay out if they want to stay in business.
Statistically speaking, people in their 20s are far less likely to die than people in their 40s. So, 20-somethings will have lower premiums than older people.
People who are healthy also present a lower risk to insurers, so healthy people pay lower premiums. If you’re young and healthy, you’ll get the best rates possible, but staying healthy even as you age will help you get more favorable rates.
Term life insurance is the cheapest. You can get a 20- or 30-year term, and the premium you pay will remain the same throughout the life of the term. If you get a 30-year term, you’ll be paying about $20 per month for $250,000 in coverage when you’re 40 years old. You’d never find coverage for that price if you were just starting at 40 years old.
Women usually have slightly cheaper premiums than men because the data shows that women are less of a risk than men.
Permanent policies are more expensive than term policies, but they’re still much more inexpensive at 20 than at 40.
How do you find the right policy?
The first thing you need to do is decide what type of policy is right for you and determine what qualities you need in life insurance. The more coverage you have, the more expensive your policy will be, but here are some qualities to consider:
- Disability payout – Some policies will offer a payment if you’re disabled and not able to work.
- Savings account and investment opportunities – You can find coverage that puts some of your premium into a savings account.
- Option to increase coverage – You might want to consider a policy that allows you to purchase higher coverage in the future to adjust for your insurance needs.
Compare life insurance quotes to get started. There are websites that let you enter your information once and then give you several quotes from different companies. That will save you time compared to entering all your information on each individual insurer’s website.
Once you find your top three or four choices from your comparison search, dig a little deeper into the individual insurance companies.
The Better Business Bureau deals with consumer complaints and will give you an idea of how well businesses treat their customers.
You should also check the financial stability of the companies you’re considering. You’ll have that policy for 20 years or longer, so you can’t risk choosing a company that goes belly-up in five years. AM Best is an independent rating agency that gives grades to insurance companies as well as their future outlook.
Don’t forget to check in with friends and family and see who they went with for life insurance. Their insight and experience can be very helpful.
Buying life insurance in your 20s isn’t always necessary, but it’s rarely a bad idea. Your premiums will be lower than if you wait, and your policy will ensure that your loved ones are left paying your debts as they’re mourning your loss.
Melanie Musson writes and researches for the life insurance comparison website, TopQuoteLifeInsurance.com. She is the fourth generation in her family to work in the insurance industry.