Estate Planning

Yes, Millennials Can Qualify for Life Insurance

According to research by LIMRA, 41 percent of millennials think they don’t qualify for life insurance. I find that shocking, and I take it as a challenge. We in the insurance industry need to do a better job communicating the value of life insurance to younger generations.

Ironically, millennials are probably among the best possible candidates for life insurance. They are young, healthy, and they have the time to let the power of compounding interest work for them to build cash value in a permanent policy.

What is at work here is probably a fear of the unknown. Many millennials don’t know what life insurance is, and in particular they don’t know why they would need it. More importantly, they don’t know the benefits of starting early. They could start with term insurance to lock in their insurability while young and healthy, then convert to permanent coverage as their wealth builds up and they want to start growing cash value for the future. Life insurance isn’t just about leaving a death benefit for beneficiaries; the cash value of a permanent policy can provide living benefits as well.

Here are some of the things that might be keeping millennials from thinking that life insurance is for them:

Can’t afford life insurance

If millennials think life insurance is too expensive, they aren’t alone in over-estimating the cost. Studies have shown if you ask people what life insurance costs, they overestimate by a factor of three. If they take the time to find out the truth, I think people will be genuinely surprised at the affordability of life insurance.

Not healthy or wealthy enough

Because of their age, millennials are usually much healthier than older generations; they would likely easily qualify for life insurance, and they would likely be placed in a preferred rate class.

As for wealth, life insurance protects your future earnings and, in the case of permanent insurance, builds cash value for access while one is alive. Take your current income, multiply it out over the 20, 30 or 40 years of your expected working life, and you will come to an astoundingly large number. That is the “wealth” that you want to protect with life insurance. The growth of cash value inside a permanent life insurance policy can also be significant due to the power of compound interest.

Don’t have dependents

Not having dependents doesn’t “disqualify” you from having life insurance – you can always get insurance on yourself. Penn Mutual was working with a group of Drexel University students to uncover how insurance companies should talk to millennials and Generation Z. One of these students’ biggest worries was that their parents would be stuck paying for their accumulated student loan debt if they passed prematurely. So, while they didn’t have a dependent per se, they were uncomfortable potentially leaving their parents with a liability if they passed away. Life insurance can help, even if you don’t have dependents.

The traditional triggers for getting life insurance are getting married, having children, or buying a house. Millennials are generally delayed in doing these things, both by choice and by financial necessity, but they are starting to catch up. And they do have that new trigger: Crushing student debt.

Don’t know about the living benefits of life insurance

Life insurance is more than just for the protection of the death benefit. The accumulated cash value from a permanent life insurance policy can be a way to save for things like buying a house, starting a business, sending a child to college, or funding retirement.

But people don’t often hear of the idea of using life insurance as a way to generate income in retirement and it’s not something that people get exposed to when they research life insurance on the Internet. Most of the products that turn up in a search for life insurance are term policies, which are pure protection and don’t build up cash value. It’s reinforced every time they go online — the policy that might best suit their long-term needs isn’t available online. It’s only available through a financial professional.

Doesn’t provide a buying experience they’d like to have

Many millennials prefer buying things online or on a phone. The traditional life insurance buying process takes weeks from application through medical underwriting to policy issue and premium payment. The current process of buying life insurance puts them off.

Penn Mutual has been at the forefront of re-envisioning the process for buying life insurance, making it shorter, easier, and less of a hassle. 

Don’t trust financial institutions

For the generation that came of age in the financial crisis of 2008, there may be a deep-seated mistrust of large financial institutions.

In that case, the idea of a mutual life insurance company should appeal to millennials, because our policyholders are our owners. The dividends go back to our policyholders. There are no outside investors pulling the strings and competing against the interests of our policyholders. The mission of our company is to serve our policyholders first and always.

In fact, life insurance is the original crowdsourcing, sharing risk among a larger group of people for the benefit of both the group and the individuals involved. Some people will outlive their life expectancy, and others won’t, but pooling the risk together helps people protect against it. That idea has been in place since the early 1800s, since life insurance existed. The life insurance industry was the pioneer in the sharing economy, something that Airbnb and Zipcars have lately rediscovered.

So, while I am concerned that 41 percent of millennials don’t think they qualify for life insurance, I am encouraged that 59 percent of them do. There are strong reasons that millennials should have their own life insurance, beyond what they get from work. At the same time, we in the life insurance industry will need to continue to educate people on the value life insurance offers, and we need to make it easier to get life insurance.

This post is for informational purposes only and should not be considered as specific financial, legal or tax advice. Depending on your individual circumstances, the strategies discussed in this presentation may not be appropriate for your client’s situation. The information in this material is not intended as tax or legal advice. Always consult your legal or tax professionals for specific information regarding your individual situation.

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