Think life insurance is only something you’ll need when you’re older? You might be surprised.
Buying life insurance in your 20s can yield some key benefits that you may lose out on by waiting to get covered. If you’ve been thinking about purchasing life insurance, but you’re not sure the time is right, here are five reasons not to put it off.
1. The younger you buy coverage, the better
When it comes to life insurance, the early bird typically gets the lower premium. That’s the amount you pay, usually monthly, to keep your policy in place. The younger and healthier you are, the lower your premiums are likely to be.
Opting for permanent life insurance in your 20s also has some upsides. Permanent life insurance — including whole and universal life policies — cover you for a lifetime, meaning your insurability is locked in as long as you keep up with the premiums. Not only that, but these policies allow you to build cash value over time.
Buying permanent coverage in your 20s gives you a longer window for accumulating cash value in your policy. You can borrow against that cash component later if you need to, or let the cash value continue to grow, giving you an opportunity to build an income stream in retirement.
2. Mom and Dad cosigned on your student debt
If your parents cosigned on your student loans, or other debt like a car loan, that debt doesn’t disappear if something happens to you. Cosigners are equally liable for any balance, so if you were to pass away unexpectedly, your parents would be on the hook for repaying what’s still owed. Life insurance can keep those obligations from being a financial burden in your absence.
3. You don’t want to leave behind a bill for funeral expenses
The average funeral costs between $8,000 and $10,000, which certainly isn’t small change. You may assume that because you’re young and healthy, funeral planning isn’t something you need to think about, but the reality is that 20-somethings are more likely to die as the result of an accident than any other age group. It may feel morbid to think about funeral arrangements when you’re in your prime, but planning ahead can spare your parents, spouse or anyone else who may be responsible for your burial costs additional grief. Life insurance can pay those expenses.
4. Having a family is part of your long-term plan
Getting married or having kids may not be on your radar in your 20s, but you might be singing a different tune in your 30s. When you go from being single to a party of two, three or more, life insurance can help protect your financial peace of mind.
For example, if you’re the breadwinner of the family and you were to pass away, your spouse could use the proceeds from your life insurance policy to pay off the mortgage or simply manage day-to-day expenses. Life insurance could also be used to put your kids through college later.
5. Financial freedom is on your wish list
It’s never too early to think about the future, and life insurance can be a valuable tool to help you reach your money goals. Think about your retirement plan, for example. In your 20s, you may not have a clear picture of what retirement will look like, but you know you’ll need cash to fund it.
If you purchase a whole life policy at 25, by age 65 you could have a tidy sum of cash value that you could draw against to supplement your retirement income. Alternately, you could use some of that cash value to consolidate high-interest debt, pay off your mortgage early, or start a business of your own, all of which can give you more financial breathing room.
Life insurance policies contain exclusions, limitations, reductions of benefits, and certain requirements to keep them in force. Products and features are subject to certain eligibility requirements and/or restrictions. Accessing cash values may result in surrender fees and charges, may require additional premium payments to maintain coverage, and will reduce the death benefit and policy values. Loans and other policy withdrawals may be taxable under certain circumstances.
This information is for hypothetical and educational purposes only and should not be considered specific tax, legal, investment or planning advice, which will only be provided on a personalized basis. Depending on individual circumstances, the strategies discussed may not be appropriate for your situation. Individual results may vary and the presented information is not a guarantee of future performance or success.