Life insurance pays a lump sum cash benefit to your loved ones if you pass away, helping to protect your dependents from financial hardships from the loss of your income. The cost of life insurance varies, and the need for it changes depending on your phase of life.
However, while everyone wants their loved ones financially protected in the event of death, the specific variety of life insurance one should buy also changes with life circumstances. Read on to learn at what point one should invest in life insurance and what kind may be right for you.
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When Should You Consider Buying Life Insurance?
In short, at the minimum, one should consider buying life insurance when they have family or colleagues they need to protect or the desire to lock in a reasonable rate while still young and healthy. Outside of those two factors, the specific answer depends entirely on one’s life circumstances.
For example, a married 25-year-old homeowner with a chronic illness and a 2-year-old child requires different coverage than a childless, single 40-year-old who rents an apartment. So while most people could benefit from some life insurance coverage, the specificities range wildly. Let’s explore some of the specific scenarios that factor into what is an appropriate time to purchase life insurance:
When Young and Healthy
The younger you are, the lower your insurance rates will be. Buying life insurance when you are young and healthy locks you in at lower rates. As you age, premiums increase, and your health could decline, so you pay a higher rate or become ineligible for coverage.
After Getting Married
Getting married brings new financial responsibilities. Couples typically make decisions based on two incomes. Buying life insurance helps protect your spouse from having to find a way to pay debts, final expenses, and housing costs. Even a stay-at-home parent should have coverage to help the surviving spouse replace their contributions (e.g., childcare) with paid services.
After Having Children
If you have children, life insurance can help pay for their care and education if something happens to you. It’s also vital for a stay-at-home parent to have insurance. Although their death would not cause a loss of income, insurance covers final expenses and helps the surviving parent pay for childcare.
After Purchasing a Home
Couples qualify for a mortgage based on their combined income. If one partner dies, the surviving spouse may be unable to afford the payments. If you’re buying life insurance, ensure the death benefit is enough to pay off your mortgage. You can purchase a reasonably priced term life insurance policy for 20 or 30-year, and your family will have a paid-off home if the unthinkable happens.
After Starting a Business With Partners
Partners in a small business often have a buy-sell agreement. Therefore, if one partner dies or becomes incapacitated, the other can buy their stake in the company. Because of this, it is common for business partners to purchase life insurance policies for each other. If one dies, the other uses the insurance money to buy out the deceased partner’s stake in the business from their family. Relatives of the deceased partner get a payout, and the remaining partner manages the business without interference.
What’s the Best Age To Get Life Insurance?
Generally, the younger and healthier someone is, the less they pay for life insurance. Insurers’ price policies depend on the likelihood of use. The less likely someone is to file a claim, in this case upon death, the less money they charge someone for coverage. The same is true of other varieties of insurance as well. For example, as younger, less experienced drivers pose a higher risk of getting into an accident, they pay higher rates for coverage.
Life Insurance in Your 20s and 30s
During your 20s and 30s, insurance is affordable if you are a nonsmoker and in generally good health. A 25-year-old in excellent health could pay $17 per month for a 20-year, $500,000 term life insurance policy. In contrast, a 25-year-old male smoker could pay $85 per month.
Life Insurance for People Over 50
When one reaches their 50s, they are likely to have fewer financial obligations than when they were younger. However, this period of life also brings health issues that can drive up the cost of insurance if one hasn’t purchased a policy yet.
For a 50-year-old in good health, a 20-year $500,000 term life insurance policy averages $68 per month, compared to $21 per month for a 25-year-old in good health.
What Type of Policy Is Right for Me Based on My Age?
While deciding when to buy life insurance is essential, you’ll also need to decide what kind of policy to purchase. Do you want to cover a death benefit, accumulate savings, or cover living expenses for loved ones?
Term life insurance pays a death benefit for a specified period, such as 10 or 20 years. The policy ends after the term, and there is no payout if you die after that time unless the policy is renewed, usually at a much higher cost, or converted to a permanent policy. However, if you want coverage until your death, whole life insurance remains in effect permanently as long as you pay premiums.
When To Buy Term Life Insurance
Term insurance is less expensive than whole life insurance. So if you need coverage for a specific period, or have a limited budget, get term insurance. For example, if you had a one-year-old child and bought a 20-year term policy, the coverage would last until the child turns 21.
When To Buy Permanent Life Insurance
While more expensive than term insurance, permanent or whole-life policies slowly build cash value. You can withdraw from the cash value or take a policy loan.
A whole life policy is good for someone seeking lifelong protection, such as a child with a disability. High-net-worth individuals who have maxed out their retirement contributions can use a whole-life policy to accumulate additional tax-deferred savings.
The Cost of Waiting To Buy Life Insurance
Life insurance usually has a level premium set when you purchase the policy. Because younger people pay lower rates, buying insurance earlier locks in low premiums for the duration of the policy. Waiting to purchase insurance could mean you’ll pay more or have difficulty qualifying if your health declines. In a worst-case scenario, you could die, leaving your dependents unprotected.
How Expensive Are the Premiums if You Wait?
Consider this example: A 55-year-old male who buys a life insurance policy pays $130 per month for a 20-year, $500,000 term life policy if he has good health. A 30-year-old male pays $24 per month for the same coverage. The 55-year-old will pay $31,200 in premiums over the policy’s life, compared to $5,760 for the 30-year-old.
Increased Chance of Being Denied a Policy
Insurance underwriters look at several factors when you apply for insurance. These include:
- Age
- Gender
- Smoking status
- Health
- Driving record
- Occupation and lifestyle
If your health is poor, you might pay a higher rate for insurance. Insurers may deny coverage to applicants with chronic illnesses like diabetes, cancer, or heart disease.
Who Would Not Need Life Insurance
Having life insurance is essential for some, but not everyone needs it. You likely don’t need life insurance if you are young and single with no dependents, or you may only need a small amount to cover final expenses. Life insurance is unnecessary if you have enough assets to take care of your financial responsibilities in the event of death. However, it may still be worth exploring to maximize the payout to your beneficiary.
Older people may not require life insurance either in some circumstances. For instance, if you’ve paid off your mortgage and your children are grown and financially stable, you may not need additional life insurance.
When Should I Buy Life Insurance for My Child?
Occasionally, parents or grandparents buy life insurance for children. These policies can be a standalone whole-life policy or added as a rider to the parent’s policy. The advantages of children’s policies include locking in low premiums and death benefit coverage. If the policy is a rider, when the child becomes an adult, they can convert the policy to a permanent policy with no underwriting.
Coverage for children is usually low, with most coverage amounts of $25,000 or less. If the child opts for permanent insurance as an adult, some policies increase coverage up to five times the original benefit.
How To Buy Life Insurance
The Insurance Information Institute (III) recommends these steps if you’re considering buying life insurance.
- Decide if you need coverage.
- Calculate how much insurance you need.
- Decide what the insurance will cover, such as final expenses or paying off a mortgage.
- Choose between term or whole-life coverage.
- Consider adding riders to the coverage.
- Shop around for the best coverage and price.
- Tell your beneficiaries about the policy.