Life Insurance In Your 20s and 30s

Life insurance is often overlooked by younger people, especially those aged 20 to 39. However, while youth may give you a sense of invincibility, unforeseen events like car accidents can still put your life in danger and disrupt financial stability. Besides safeguarding your wealth, life insurance offers various other benefits even if you’re in the younger demographic. 

How Life Insurance Works Overall

Life insurance is a contract between an insurer and an insurance policyholder, where the latter pays regular premiums, and in the event of their death, the insurer pays a predetermined sum to the policy’s designated beneficiaries. Simply put, life insurance provides a financial safety net for your loved ones, covering expenses like mortgages, debts, and living costs if you become terminally ill or pass away unexpectedly. 

Death does not discriminate, and unforeseen tragedies can happen to anyone at any age. So, while getting life insurance at a young age may seem morbid, it’s a wise move that can protect your loved ones from devastating financial losses after you’re gone. 

Why Get Life Insurance When You’re Young?

When you’re young, purchasing life insurance might not be a top priority. Yet, it’s probably the best time to start shopping for one. Here are a few reasons why buying life insurance while young can be a great decision. 

Younger Adults Pay Lower Premiums For the Same Coverage

While you generally pay the same premiums throughout the life of your life insurance policy, the age at which you purchase the policy has a significant impact on your rate. As you age, you may experience more health issues, making you riskier to insure. This is why younger adults typically pay lower premiums for the same coverage than older adults due to their lower perceived mortality risk. To lock in an affordable rate and save a good chunk of change over the life of your policy, purchase it while you’re still young and healthy. 

Age and Sex	Average Premium for Term Life Policy, $250,000 Coverage for 20 Years	Average Premium for Whole Life Policy, $250,000 Coverage
20 years old, Female	$10.94	$132.00
20 years old, Male	$12.53	$151.00
25 years old, Female	$12.02	$160.66
25 years old, Male	$13.90	$180.77
30 years old, Female	$13.70	$211.12
30 years old, Male	$15.68	$238.07
35 years old, Female	$16.72	$227.40
35 years old, Male	$21.48	$261.41
40 years old, Female	$18.67	$299.57
40 years old, Male	$20.83	$350.81
50 years old, Female	$30.92	$429.00
50 years old, Male	$39.12	$499.00
60 years old, Female	$75.97	$700.00
60 years old, Male	$108.49	$802.00
70 years old, Female	$364.99	$1,120.00
70 years old, Male	$407.04	$1,360.00

Your Employer’s Life Insurance Is Likely Not Enough

Another reason to consider purchasing life insurance early is that relying solely on your employer’s life insurance may leave significant coverage gaps. Employer-sponsored policies are typically term life insurance, which only provides coverage for a specific time. In other words, you’ll no longer have coverage if you leave your employer or retire. Also, the maximum coverage amount you can get through your employer’s plan may not be enough to meet your loved ones’ financial needs if you pass away.

To make sure you and your loved ones are fully protected if your employer’s life insurance falls short, consider purchasing a stand-alone life insurance policy that’s not tied to your job. 

Have a Fund to Settle Debts and Pay Expenses

Investing in a life insurance policy while young helps establish a financial cushion to settle debts and cover any expenses your loved ones may face if anything happens to you. For example, if you become terminally ill or pass away unexpectedly after purchasing a home, the life insurance payout can settle the mortgage and pay off outstanding debt so that your loved ones can mourn without financial strain.

Beyond debt and expenses, the payout can also ease the financial burden of funeral costs, especially with the national median cost of a funeral with a viewing and burial having exceeded $7,000 in 2021. 

Support Your Loved Ones

While you may still be in the early stages of your career in your 20s and 30s, you might already be the breadwinner of your household. Without life insurance, you could leave your loved ones vulnerable to financial hardship and insecurity if you pass away unexpectedly. 

If your household relies financially on you, a life insurance payout can serve as an income replacement to help your loved ones cover ongoing expenses like rent, childcare, tuition, and grocery bills when you’re gone. While the death benefit may not last your family an entire lifetime, it provides financial support as they navigate through the grieving process.

Support Your Personal Causes

In the same way you may name your loved ones as beneficiaries of your life insurance policy, you can name a charity, too. With life insurance’s flexibility to name multiple beneficiaries, you can ensure your financial legacy extends to both your loved ones and the charitable initiatives you support. 

The Best Life Insurance Types For Young Adults

Life insurance is not one-size-fits-all. Understand the pros and cons of each life insurance type to make the most informed decision that aligns with your needs.

Term Life Insurance

Term life insurance is a type of life insurance policy with a specific end date, typically anywhere from ten to 30 years. In other words, it provides protection for a limited time and will only offer a death benefit if the insured passes away during that period. Because term life insurance is not permanent, it’s typically more affordable than other life insurance types, making it attractive for young adults with a tight budget. 

• Standard term life insurance: Standard term life insurance is the default choice when it comes to term life insurance. It’s straightforward. Your premiums remain consistent throughout the policy, and the term length stays the same. 
• Mortgage life insurance, or decreasing term: Decreasing term life insurance, or mortgage life insurance, is a term life policy with a death benefit that decreases with time. Because it’s typically used to cover a mortgage or other types of loans, the payout amount generally decreases as the outstanding debt reduces. 
• Convertible term life insurance: As the name suggests, convertible term life insurance lets you convert the policy into a permanent one without a medical exam. However, your permanent life insurance options will vary based on your insurer. 

Pros and Cons of Term Life Insurance

While term life insurance is generally the most affordable life insurance option, make sure to consider its pros and cons before committing. 

Pros

• Affordable premiums: Because term life insurance may expire after a set period and does not build cash value, it’s generally less expensive than permanent life insurance. 
• Simplicity: Since term life insurance does not come with an investment component, it’s rather straightforward and easy to understand. 
• Flexibility: Term life insurance offers various term options, typically ranging from ten to 30 years. If you choose a convertible term life insurance policy, you also have the flexibility to switch to a permanent policy later on.
• No commitment after term ends: Once your term life insurance policy expires, it’s up to you to decide whether you want to renew the contract. 

Cons

• No cash value: Unlike permanent life insurance, term life policies do not accumulate cash value, which means you will not receive any returns on your investment.
• Premiums may increase with renewal: If you choose to renew your term policy after it expires, you may be charged a higher rate since premiums tend to go up with age.
• No payout if you outlive policy: If you outlive the policy term and it does not automatically renew, you and your loved ones will not receive a death benefit payout. So, if you’re looking for a policy with a guaranteed payout, term life insurance may not be the best fit. 
• Limited duration: Term life insurance only provides coverage for a set time, which can be a downside if you have ongoing financial obligations that extend beyond the policy term. 

Permanent Life Insurance

Unlike term life insurance, permanent insurance has no end date and offers lifelong coverage. While its premiums are typically higher, permanent life insurance offers a tax-advantaged cash value savings component that accumulates over time and can be accessed while you’re still alive.

• Whole life insurance: Whole life insurance is the default choice for permanent coverage. It offers level premiums, a guaranteed death benefit, and a cash value component that grows over time. 
• Universal life insurance, or decreasing term: Universal life insurance is more flexible than whole life insurance. With this policy type, you have the option to increase the death benefit amount if you pass a medical exam. You can also adjust your premiums within certain limits.  
• Variable universal life insurance: Variable universal life insurance allows you to not only adjust your death benefit and premium amounts but also lets you invest some or all of your cash value in stocks, bonds, and money market mutual funds.

Pros and Cons of Permanent Life Insurance

Like term life insurance, permanent life insurance policies also have their pros and cons. 

Pros

• Lifelong coverage: The most obvious benefit of permanent life insurance is that it offers coverage for your entire lifetime and a guaranteed death benefit if you pass away.
• Cash value growth: Another advantage of a permanent life insurance policy is the cash value component, which you can access or borrow against while you’re still alive. 
• Flexible premium payment: With universal life insurance, you can adjust your premium payments upward or downward as your financial situation changes. 
• Income tax advantages: Like term life insurance, the death benefit from permanent life insurance is typically not subject to income tax. In addition, all growth within permanent life insurance cash value accounts is tax-free. 

Cons

• Higher premiums: Permanent life insurance is typically pricier than term life policies, which can be a financial strain for young adults.
• Complexity: The intricacies of permanent life insurance, with its cash value and investment components, can make it more difficult to understand than term policies.
• Opportunity cost: The returns on the cash value of permanent life insurance may not match those of alternative investment options, like investing in your own business or real estate. 
• Surrender fees: While you can typically cancel your permanent life insurance policy at any time, you may incur surrender fees. Depending on the insurer, surrender fees can range from 10% to 35% of your cash value amount. 

Should You Wait to Buy Life Insurance?

Waiting to buy life insurance can make sense if you’re currently facing financial constraints and cannot afford to pay the premium. However, if your budget allows, you may want to look into term policies to provide some protection in the meantime. When your financial situation improves, you can cancel your term life insurance coverage and switch to a permanent one, though your premiums will likely be higher due to the policy type and other factors like your age. 

How to Buy Life Insurance

Buying life insurance can be overwhelming, especially with the abundance of choices on the market. Here’s a step-by-step guide to help you find the most suitable policy for your needs:

1. Calculate your coverage needs and benefit amount. The general rule of thumb when determining your life insurance coverage amount is to take your annual salary and multiply it by ten. In other words, if you make $100,000 annually, you’ll need at least $1 million in coverage. However, no formula is one-size-fits-all. Consult a licensed life insurance agent for personalized advice. 
2. Get quotes and compare your options. Once you’ve determined your coverage needs, get quotes from at least three insurance providers and compare factors like premiums, coverage terms, and additional benefits. 
3. Submit an application. After finding a provider, you’ll submit an application. Depending on the insurer, you may be asked to provide your social security number, medical history, and payment information. 
4. Undergo medical underwriting. Many life insurance policies require applicants to undergo a medical exam before they provide coverage. During this exam, the insurance company’s medical examiner will typically check your vitals, like your weight and height, and collect blood samples. 
5. Await final approval. Once you’ve completed the application process, the insurer’s underwriter will review your application and medical exam results to determine your eligibility and premium rate. If you’re approved, the insurance company will typically send the policy documents for you to read and sign.

Your Options If Your Application Is Denied

If your life insurance application is denied, first check with the insurer to understand why it happened. If incorrect or insufficient information is the reason for the rejection, work with your insurer to fix the issue. If you’ve been denied coverage due to health-related issues, consider working with a licensed life insurance agent specializing in helping higher-risk individuals obtain coverage. You can also try applying again later once your health conditions improve or look into other policies that do not require medical exams. 

Putting It All Together

Unfortunately, tragedies can strike at any age. While you may feel invincible in your 20s and 30s, life can throw curveballs, and you must be prepared for it. So, if you have not already, start exploring life insurance policy options. Talk to a licensed life insurance agent who can guide you through the process and help you find the best coverage that aligns with your current needs and future plans.