At What Age Should You Buy Life Insurance?

Choosing the right time to buy life insurance is an important aspect of the process. Your age, along with your health and other factors, determines how much insurance costs, so purchasing earlier may result in cost savings. Your unique position, specifically who else depends (or will depend) on you for income or care, and your life goals will determine when exactly you should get coverage.

Who Is Life Insurance Best For?

Life insurance policies can be simple: If you pass away, the insurance provider will pay a “death benefit” to whoever you specify. Some policies may offer a savings component, or “cash value,” that is usable while you are still alive in addition to a death benefit.

However, life insurance is preferable if you have loved ones for whom you want or need to provide after your passing. According to LIMRA’s 2020 Insurance Barometer Survey, 54% of Americans have a life insurance policy. In most cases, life insurance is employed for:

  • Pay off outstanding debts
  • Replace lost income
  • Create an inheritance for beneficiaries
  • Help with paying college or other education expenses for children
  • Cover final expenses, including funeral and burial costs
  • Pay death and estate taxes
  • Make charitable contributions
  • Grow tax-deferred savings, or as an investment tool (if you purchase a permanent policy that accumulates cash value)

Should You Buy Life Insurance in Your 20s?

The younger and healthier you are, the less expensive life insurance is. This is because health issues that could raise your insurance premiums or perhaps make you ineligible for coverage are more likely to arise as you become older. Is that sufficient justification to purchase insurance in your 20s? Maybe. It’s usually a good idea to purchase insurance sooner rather than later if any of the following situations apply to you:

  • You have children or a partner you’d like to provide for financially in a worst-case scenario.
  • You don’t want your family to have to pay for funeral and burial/cremation expenses.
  • You have co-signed debts, such as private student loans or a car loan, that you don’t want your co-signer stuck with if you pass away.
  • You’re maxing out an IRA and your retirement plan at work, and are looking for additional tax-deferred savings opportunities.
  • You expect to need life insurance someday.

The amount of coverage you can afford depends on your age, not only because coverage is less expensive but also because you can probably afford more as you become older. Get a policy for a predetermined number of years (usually 10, 15, 20, or 30 years) and coverage amount if you’ve decided that you need life insurance right away and can comfortably afford it, even if the coverage amount is less than what you need. Then, when your finances improve, you can get a larger policy that covers the rest.

Factors to Consider When Shopping for Life Insurance

It’s crucial to think about whether to purchase term life insurance, permanent life insurance, or both when looking for coverage. While permanent life insurance covers you for the rest of your life and is more expensive, term life insurance protects you for a predetermined period, usually between five and thirty years. Your choice of insurance depends on several factors, including how long you need coverage for, how much coverage you require, and how much you can afford.

For instance, a term insurance policy that lasts at least that long could be ideal if you wish to support your family while your children are still young and until they graduate from college. On the other hand, if you want to offer a sum that covers your funeral expenses, no matter when you pass away, a permanent policy might be more suitable.

Another option is to buy a smaller permanent policy and a bigger term policy to make up the difference in coverage if you prefer the investment component of a permanent insurance policy but cannot afford to buy one with the quantity of coverage you need. You are free to purchase both term and permanent coverage to meet your various insurance needs.

When determining how much coverage you require, take into account if you already have life insurance via your workplace. If you leave your employment, keep in mind that coverage might not be portable and might cost extra.

Pros and Cons of Buying Life Insurance at a Young Age

Pro: Premiums Are Often Cheaper

The cost of your life insurance is influenced by a variety of factors, including your age. In general, your rates will be lower the younger and healthier you are.

If you’re a 25-year-old male who doesn’t smoke and is in excellent health, for instance, a 30-year term life insurance policy with $500,000 in coverage might cost you $28.23 a month. But if you’re 40 and in good health, your monthly rates might be $51.17 instead.

To determine your coverage costs, use an online life insurance premium calculator.

Pro: Coverage Is Easier to Get

You’re frequently obliged to have a paramedical health test as part of the life insurance underwriting procedure. Inquiries regarding your family history and current health status will also be made. Since you’re less prone to experience severe health problems and, generally speaking, have a long time left to live (than someone older), insurers are more likely to approve your application.

Pro: It Can Create a Legacy

You might not have had the opportunity to accumulate sizable assets when you were in your 20s or early 30s. To leave something behind for your loved ones, life insurance can replace the wealth you would have built up through a lifetime of work and savings.

You may be “passing on” things to your family like debt that you’d rather not. For instance, private student loans are not protected from discharge upon the death of the borrower, although federal student loans, including parent PLUS loans, may be.

Con: It’s an Added Expense

Even though life insurance premiums are an ongoing cost, they can be more difficult to manage when you’re young. If money is tight, you must decide if you can reasonably afford coverage and, if so, how much may need to be content to purchase less than the amount you need.

Con: Returns May Be Better Elsewhere

DEven though you may make this case at any age, the younger you are, the longer your investments will have to grow. Compound interest, or the fact that the interest you earn on assets also earns interest, is to blame for this. You can earn more money by giving these interest-on-interest earnings additional time to compound.

Some advise “buying term and investing the difference,” which means that rather than buying a permanent life insurance policy when you’re young, you buy a term policy and put the extra money you would have spent on permanent coverage in investments. By doing this, you can take care of the demand for life insurance as well as the requirement for retirement savings. It’s important that you need to invest the difference.

While investing in the market can yield higher returns, it may also carry more risk, compared to the cash value of a permanent life insurance policy, which typically offers a guaranteed rate of return.

Check Also:

What Is Term Life Insurance?

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