The earlier you take out life insurance, the more you could save. In this post, we’ll show you why getting life insurance at a young age will pay off in the future.
Good timing plays a large part in getting the most from insurance. Our previous blog was for anyone concerned that they’ve waited too long to get coverage. This time we answer the opposite question: “Is it too early for me to get life insurance?”
What is “good timing” for an insurance policy?
Good timing with life insurance is simple: The earlier you get coverage, the better.
Ideally, all insurance is preemptive. You purchase coverage before anything goes wrong to cover you in case it does. But some people only make coverage a priority after they’ve gotten bad news (perhaps a medical diagnosis or accident), and that new information makes the policy more expensive. In general, the earlier you get insurance, the healthier you are. And the more stable your situation, the less you’ll pay for the same coverage.
Why your 20s is the best time to buy life insurance
Let’s consider a young, single person in their 20s. With no spouse or dependents, it may seem unnecessary to have life coverage. After all, there’s nobody to support if they pass away. However, their family could still inherit medical bills, funeral expenses, or co-signed debt that a young person may leave behind. Life insurance is one way to ease the financial burden that would be passed on to others.
Also, many people don’t stay single their entire lives. At some point, that person may choose to marry and/or start a family. Since policies tend to be far more affordable when you’re younger and (usually) healthier, this is a good time to put a policy place to provide for a future family. It’s also common for life insurance policies to cover a policyholder’s spouse or dependents to some degree, so insuring yourself now could make it easier to cover them in the future.
For many people, youth feels like the healthiest time of their lives. Mortality is distant and life insurance seems like it can wait. But that’s not always the case. The sad fact is that mortality rates are increasing among young Americans.
Young people are sicker than ever and at higher risk of accidents
Heart attacks and strokes are rising among Americans under 40, due in part to consumption of alcohol, poor diet, and narcotics.
No one is immortal, of course, and no one is immune to the accidents which account for 41 percent of young deaths from ages 15 to 24. This is often when people start driving, or driving more for a daily commute, and young drivers face an increased risk of mishaps on the road. United States road crash statistics show that almost 8,000 people are killed annually in crashes involving drivers ages 16-20.
Guarding against these worst-case scenarios is essential to getting the best and most affordable life insurance protection. And even the most safety-conscious young adult who avoids all of the above hazards eventually will be affected by time and decreasing health.
How age affects life insurance policies
The good news is that youth is the best time to buy life coverage and enjoy the best rates available. Your 30s are still “young,” but even those rates are higher than someone in their 20s.
Life insurance rates increase dramatically if you take out the policy when you’re older, and lifestyle choices affect those premiums even more. The average annual cost for $500,000 of a non-smoking life insurance policy taken out at 25 years old is $273.90 compared to $420 at 40. The gap is even wider for smokers—$831 at 25 compared to $1,755 at 40—and it only gets worse the longer they wait.
Term life provides a payout to beneficiaries if the policyholder dies within a specified term, but whole life has potential long-term benefits that may be more attractive for younger policyholders.
The financial benefits of whole life and universal life policies for younger people
Whole life policies have fixed terms for the entire life of the agreement that guarantee the rates won’t go up as the policyholder ages. Those premiums may be higher than a term life policy because term has no cash value, but other elements of whole life can offset this difference in rates.
Being younger can mean that many milestones haven’t yet been reached—buying a house, starting a family or business, etc. Whole life policies accumulate cash value and may generate annual dividends which can be withdrawn or used to generate interest, either of which puts more money into a policyholder’s pocket at a younger age.
Universal life policies also allow young people to build cash, which they can borrow against. This may be the most beneficial of all the policy types due to its flexibility. After the initial premium payment has been made, a policyholder can increase or reduce their death benefit, or change the frequency and amount of their payments.
The premium paid into universal life policies splits in two: One part insures the policyholder, while the other goes into a tax-deferred investment account. Money can be withdrawn from the cash account as well, which is particularly useful to younger people trying to make large life purchases (like a car or home) or who may be encountering a financial rough patch.
Whole and universal life policies perfectly demonstrate why it’s better to get life insurance in place early. Choosing either one effectively creates its own interest-gathering savings account which may even accrue enough to one day supplement retirement.
Remember the golden rule with life coverage: The earlier you buy, the better.
NICRIS Insurance is ready to help you put the right policy in place. We focus on providing clients with the right suite of products to protect them and their loved ones. Set up a free, personalized insurance review right on our website, or just drop us a line!