This is a guest post from Jeff Rose, an Illinois Certified Financial Planner and co-founder of Alliance Investment Planning Group. He is also the author of Good Financial Cents, a financial planning and investment blog. You can also learn more about Jeff at his website Jeff Rose Financial.
You may have read that you don’t need to buy life insurance early in life. That’s not necessarily true. In fact, getting a policy before midlife may prove wise. Relatively few people opt for life insurance coverage between the ages of 18 and 45, yet there are compelling reasons to get life insurance within this window of time.
The key question. Are you supporting individuals whose livelihood depends on your income? If the answer is yes, it’s time to look at life insurance.
Now, you may be saying: shouldn’t I wait to get a policy? Why should I pay premiums when I have so many other checks to write? Well, the reluctance is understandable: the perception is that life insurance is for old people, and when you’re 30 or 35, chances are you’ve got a long, great life ahead of you. But in financial terms, here is why this can be advantageous.
You’ve got your health.
Typically, Americans shop for a life insurance policy in the middle of their life spans – when they are in their forties or fifties. At that time, they may have already fallen into the grip of bad habits (smoking, obesity, heavy drinking) and diabetes, heart disease, cancer or HIV may have entered their health picture. All these conditions can jack up premiums or make it harder to get a policy.
The cost is relatively cheap.
Okay, maybe you won’t have to contend with any of the above health risks at 45 or 50 – but who knows? Buying a term insurance or permanent cash value life policy early in life, before you have to encounter any of these problems, should allow you to pay less expensive premiums. (Presuming you don’t face recurring risks to your health and safety today.)
Did you know that premiums for standard-risk term life insurance fell 50% between 1994 and 2008? Premiums have been getting cheaper and cheaper for new term life policyholders, partly because the mortality rate has dropped over the decades. In fact, the non-profit Insurance Information Institute says term insurance premiums have fallen by more than 4% per year since 2000, and the premiums on cash value policies are averaging roughly 5% lower today compared to a decade ago.
Why would young singles need life insurance?
Good question. Some financial consultants will tell you there is no pressing reason for it. Yet if you are single, buying a term life insurance policy (or even a permanent life policy) early on could bring you a better deal and potentially guarantee your insurability. I have to admit that I did not do this. But I was fortunate to take out a term life policy early enough that the premiums were still very affordable.
Maybe it’s time. Time passes, things change, and so does your need for insurance. Even if you are insured, it’s important to keep up with change – as an example, the Insurance Information Institute estimates that about a third of families don’t update their life insurance coverage after a new baby comes home. I’m an exception to this stat. Not only did I increase my insurance after having our first child, but I’m now increasing it again with the soon arrival of our second. I increased the amount dramatically so that I won’t have to worry about increasing premiums if we have another child.
If you’re young and you haven’t yet talked to a qualified insurance advisor, think about doing so today – you may be pleasantly surprised how affordable life insurance can be.
Editor’s note: Stay tuned for Monday’s post which will look at what different types of insurance are available
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Thanks, this is a question I have dealt with and have asked others about cause I am younger and really have no need for it since I only take care of myself. Something to look into though maybe in a few years to try to start earlier to get better deals like mentioned.
I am of the opinion that everyone should buy several hundred thousand dollars of life insurance as early in life as they possible can. It doesn’t matter if you don’t have a spouse or dependents yet – you are very likely to eventually. Buying term life at age 18-20 isn’t about the insurance, bit’s about insurability. The list of things that can drive your life insurance costs through the roof or even make you un-insurable is long and likely:
Most any major health problem
Some relatively minor health problems
Any mental health problems or counseling
Any recreational drug use
Major moving violations
Some relatively minor moving violations
Becoming even moderately overweight
Developing high blood pressure
Developing high colesterol
How many of those things happen between the age of 20 and the age of 30? I’m guessing about 5 out of 9, for the average individual. One catch: if you do buy at age 20, try to find a 40-year term policy. A few companies have offered them. The safe bet is to try to cover yourself to retirement, but the market isn’t geared toward young buyers so you have to shop around. A $500k 30-year policy when you are 20 years old and perfectly healthy shouldn’t cost much more than $20/mo.
Buy Life insurance if you have a considerable amount of debt so your relatives aren’t saddled with your obligations.
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