It’s time to finally understand what life insurance is, no matter how old you are.
From landing your first real job to living in your own apartment to balancing your own budget, adulting can be hard. It’s easy to get caught up trying to navigate life and stay afloat as a young adult. You have new expenses and places to put your money: Think 401k or Roth IRA contributions, health insurance premiums, and student loan payments.
Adding additional expenses, like life insurance, may seem like an unnecessary expense when you’re in your 20s or 30s, but you never know what life may throw at you. Believe it or not, having a term life insurance plan in place as a young adult may be one of the smartest things you do for yourself in this decade of your life.
Maybe you’ve been considering a life insurance plan already, or perhaps it’s never even crossed your mind. Purchasing a term life insurance plan now can be worth it: Here’s why.
First, what is term life insurance?
Like any other insurance policy, with term life insurance, individuals pay a monthly or annual premium in exchange for coverage. In this situation, the insurance company will pay a lump sum upon death to the beneficiary (or beneficiaries). Term life insurance policies last for a specific period of time; individuals can pay month-to-month or lock into a term of 20 or 30 years, for example. If they outlive the policy, they can take out another
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No one is immortal, and the unexpected can happen at any time. But this isn’t one of the primary reasons to consider life insurance as a young adult. In fact, millennials are arguably the most healthy and active demographic and will likely live long, wonderful lives. So why consider life insurance? Here’s a few reasons why it makes financial sense now.
1. Having good health can mean lower premiums.
Life insurance rates are predicted by how risky someone is to insure. Generally speaking, the healthier, younger, and fitter you are, the better life insurance premium you’ll get.
“Qualifying for [life insurance] coverage requires relatively good health to obtain coverage at a reasonable rate,” says Tom Linkous, owner and agent at Linkous Financial and Insurance Services. “Having coverage when you’re younger when health is at its best can avoid having to qualify at a later date when your health may have declined.”
Getting a term life insurance policy when you’re young and healthy will save you money in the future because you can lock into a great rate based on your health today and keep that rate for the term of your policy, potentially 30 years.
2. Increasing medication consumption increases premiums.
Whether it’s for diabetes, cholesterol, or anxiety and depression, as you age you’re likely to start needing more medication to help protect your health. While obtaining necessary help and medication is crucial, it can negatively impact your ability to get a life insurance policy at a decent rate.
When you’re young, you likely aren’t taking too many prescription medications. As such, it’s the ideal time to secure a life insurance policy because you’ll get a better rate that you can secure for the long term. Some medications or medical conditions prohibit your ability to get life insurance, so it’s smart to consider a life insurance plan now, while you’re most likely to get the best rate.
3. Personal life insurance can survive a changing work landscape.
Millennials are known as the Job-Hopping Generation, meaning young adults are switching jobs and companies more often than previous generations. Some companies will offer life insurance benefits, others will not. In the past, people who stayed at the same company for years (even decades) did not necessarily need a secondary life insurance policy because they had it through their employer. But, as millennials switch jobs frequently, they may be giving up that work perk.
“Having a personally owned life insurance policy allows a person to have insurance mobility by taking that coverage with them in the event the new company doesn’t provide the coverage needed,” Linkous says.
Purchasing a personal life insurance policy now allows for job flexibility and peace of mind. With one, you can pursue the jobs you desire without having to worry about losing essential benefits such as life insurance. Linkous says this applies to entrepreneurs who create their own companies, too.
4. Life insurance plans can be converted into savings.
In addition to providing peace of mind and coverage in case of premature death, term life insurance plans can be converted into future retirement funds. It’s hard to save for retirement, but it’s an essential financial goal. So, if you can double dip and take advantage of life insurance that can later be converted if not used, it’s worth considering.
“If premature death does not occur, term insurance plans can be converted to plans that can build funds for future retirement,” Linkous says. “Also, as a person ages, these plans can be converted so coverage can continue later on in life even if they have lost their health and otherwise would not qualify for new life insurance.”
5. Your dependents can be taken care of.
Let’s say you’re married or are in a serious relationship. What happens if you die and can no longer provide for your significant other or children? Life insurance policies can help survivors maintain their lifestyle without added stress.
“Day to day living expenses for the surviving spouse, especially if that person is not the main income earner or if health issues prevent or limit working, could be covered by life insurance proceeds,” Linkous says.
Life insurance policies allow you to plan ahead and create a plan to secure your family’s finances in case of the unexpected.
How to figure out how much life insurance you need
So you’ve decided to get a life insurance policy now, while you’re more likely to get a cheaper premium. How do you decide which policy to get and how much to take out? There are plenty of websites—such as TermLife2Go—that help compare life insurance companies, so you can do your due diligence and find the best plan.
As for how much insurance to take out, experts suggest multiplying your current income by 30. For example, if you make $50,000 annually, you’d want to take out a $1.5 million life insurance policy. An average 35-year-old male pays $49 a month on average for a life insurance plan, according to Policygenius.
Taking on additional expenses can be daunting, especially if you don’t have a ton of extra funds, but purchasing a life insurance plan now can save you money in the long run, protect your future, and give you peace of mind as you tackle adulthood. It’s like an emergency fund: there if you need it, but hopefully you won’t. What’s not to like about that?