It’s commonly believed that young, healthy people don’t need life insurance. However, while life insurance may seem like an unnecessary expense when you’re in your twenties and early thirties, it can actually serve as a helpful tool for establishing a strong financial future. Here’s a look at how buying life insurance when you’re young can both protect your loved ones and give you a financial head start.
Protect your loved ones
Life insurance is often sold as a way to help your dependents stay financially stable after your death. However, even if you don’t have a partner, spouse or children, you could still leave behind loved ones who will have to manage your final expenses. These costs aren’t negligible — according to The National Funeral Directors Association, the average American funeral clocks in at $8,755. And while cremation is generally considered a cost-effective alternative to burial, it often costs families about $6,260. Even a modest life insurance policy should cover these costs. Furthermore, if your loved ones have co-signed on a loan with you, such as an auto loan or a private student loan, your life insurance payout will help them manage your debt.
Choosing a policy
If you’ve decided to invest in life insurance, it’s important to understand the different types of policies available to you. First, see if your employer offers life insurance as one of your benefits. You should also understand the difference between permanent life and term life policies. Term life provides coverage for a predetermined amount of time, typically ranging from as little as five years to as long as 30 years. Permanent life, however, does not expire after a set period. Rather, if you pay your annual premium, you’ll be covered. Unlike term life insurance, permanent coverage allows you to accumulate value, which you can borrow against later. Therefore, it’s a good idea to get started early so your money has more time to grow. However, permanent life coverage typically costs more than term life, so evaluate your budget to make the best decision for your lifestyle.
Your health matters
Whether you choose a term or permanent life policy, your premium won’t fluctuate over time, according to Rebecca Lake, a contributor to The Balance. Therefore, when you buy life insurance when you’re young and healthy, you’ll enjoy low payments for years to come. This is because life insurance companies calculate the cost of your policy based on your risk of death. For instance, it’s more likely that an unhealthy, older policyholder will pass away before the term date. Therefore, you can make yourself appear less risky (and enjoy lower insurance payments) by signing up for insurance when you’re young. Furthermore, many chronic conditions, such as high cholesterol and high blood pressure, typically show up in your thirties and forties. If you lock in a good rate before you develop a chronic condition, you’ll save money in the long run. Plus, if you have a healthy lifestyle, you may qualify for a discount with certain insurance companies.
The longer you wait, the more you’ll pay
As mentioned earlier, your life insurance premiums will remain steady throughout the life of the policy. According to Kevin Mercadante, a personal finance contributor to MoneyUnder30.com, you can receive more coverage — and pay less for it — if you buy life insurance when you’re young. For example, a healthy, unmarried 25-year-old with no children may pay about $74 per month for a 30-year term life insurance policy. However, a 35-year-old, married policyholder with children will pay about 50 percent more — and only receive 20 years of coverage. Purchasing life insurance young allows you to save money in the long run, while also protecting your loved ones’ financial interests. If you’d like more guidance when picking a life insurance policy, consult with your family or a financial planner.
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