Life insurance for millennials
When you’re just a few years out of college and have a mountain of student loans to pay off, one of the last things on your mind is buying life insurance. You’re probably focusing on trying to meet basic expenses and maybe setting up your first 401(k), and it can be tough to justify any additional expense. You may even think that life insurance is only for recent parents or middle-aged people. But young adults are in the best position when it comes to buying life insurance. The cost when you’re young is typically lower than it will be later on, so you can lock in a much better deal.
What does life insurance cover?
There are different types of life insurance that can accomplish different things for you. The first type, permanent life insurance such as whole life insurance, never expires as long as 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 as long as 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 affordable 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 cover 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 almost certainly cost much more and most likely involve taking a medical exam. Many people have both term and permanent life insurance coverage for optimal protection.
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 $435 per month. For comparison, at age 40, that same whole life policy premium is about $650 per month, and at age 50, over $1,000 per month. 3 To put it in perspective, that’s the cost of a vacation, like an Alaskan cruise or a tour of Europe. For a 20-year term life policy, which costs less than whole life, what you can save by signing up when you’re young could pay for a new iPhone upgrade every year. 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. On the other hand, if you forget the issue and apply for a new life insurance policy later on in life, you may be required to take a medical exam and could possibly be denied for a number of reasons from occupation to known health history. People tend to be less healthy as they age, so if you have any worries about that, it makes 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 be a burden on those around you. 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, 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 planning products and investments8 that will help you throughout your life. 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 buy your whole life policy from a mutual insurance company, you’ll share in the company’s success in the form of dividend payments, which you can collect as income, reinvest into your policy, use to offset future payments, or to purchase additional coverage.7,8 Also, the fact that your premium payments never go up for your whole life is likely to eventually make them seem remarkably affordable. More than that, you’re covered by life insurance that can’t be canceled 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 cover 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 … really, everything — shouldn’t you consider protecting yourself and your family accordingly?