You usually start your career and maybe even a family in your 20s. That’s typically not the time to think about mortality -- particularly life insurance.
However, buying life insurance is a vital part of a financial plan, no matter your age. There’s not a better time to get coverage than in your 20s and 30s.
Buying life insurance when you’re young gives you more affordable options than in your 40s and 50s.
Here’s why -- life insurance companies base rates on age and health. That means if you’re healthier and younger, you pay lower premiums for better death benefits.
Matt Schmidt, CEO of Diabetes Life Solutions, said people often don’t realize that buying life insurance sooner rather than later can help in the long run.
“Even the youngest of people could benefit from having life insurance as they typically graduate college with various types of installment debt,” Schmidt said.
It’s especially vital to get life insurance before you develop any long-term health issues, such as diabetes. More than 29 million Americans have diabetes with 1.4 million new cases each year. Another eight million may have diabetes and don’t know it. That would show up if you apply for life insurance and go through a medical exam.
“Having a chronic illness may make premiums 25% to 50% higher compared to those without one. As we get older, our health tends to decline. This can make life insurance difficult to obtain, or even afford,” Schmidt said.
Lev Barinskiy, CEO at SmartFinancial, said buying life insurance before you’re 35 is most cost-effective.
“People are buying life insurance later in life despite the clear advantages of buying it as young as possible. Mainly, they don’t understand how it can be an interest-earning and tax-deferred savings account,” Barinskiy said.
People often don’t think about life insurance until they buy a home or have children. However, waiting can put your family at risk.
“Keep in mind that life is unpredictable,” said Scott Butler, certified financial planner. “You may not think you need life insurance right now if your spouse is the breadwinner or if you don’t have a mortgage or children, but you and your situation can change. You may want children or a home in the future. Your spouse could become unable to work, requiring you to become the breadwinner. Life insurance is a powerful financial tool that can mean the difference between destitution and comfort. You don’t want to find yourself in a position where you need it and cannot get it.”
Types of life insurance policies
Here are the differences:
- Term life -- This coverage is for a period, such as 20 or 30 years. Your survivors will only get a death benefit if you die during the years of the policy. Term life policies are usually more affordable and have higher death benefits than permanent policies.
- Permanent life -- This coverage is for the rest of your life. So, your loved ones will get a death benefit as long as you’ve made the payments. These policies usually have more flexibility than term life, such as adding riders for long-term care, disability income and term conversion. Permanent life insurance also has cash value, so you can tap into your policy during your life if needed.
There are multiple types of permanent life insurance. Whole life is the most common, but usually more expensive than universal life. Both have cash value, but they differ in flexibility.
Permanent life is more expensive than term life. Universal life, which is a type of permanent life, is cheaper than whole life, while still having cash value.
Here are the differences between permanent life policies:
Whole life -- This policy provides a steady premium and guaranteed benefit and earnings rate on your cash value.
Universal life -- This option lets you decide on premiums. You may choose to pay more when you have higher cash flow or less if you’re not making as much. You’ll want to make sure that you make enough payments. If not, a policy could lapse. The same goes if the company doesn’t perform as expected.
Variable life -- This policy has more risk, but also a bigger reward than other types of life insurance. Variable life lets you invest policy premiums. That also means that you may wind up with smaller death benefits and cash value if those investments fail.
Variable universal life -- This is a combination of variable and universal life insurance that lets you decide on your premiums, which you can invest. Much like variable life, variable universal life is riskier than other types of life insurance.
You’ll want to think about what kind of risk you’re willing to accept if you’re interested in permanent life.:
If you want to limit risk, whole life is likely a wise choice.
If you want cash value with some flexibility and lower costs, you may like universal life.
If you’re OK with risk with the upside of potentially earning more, variable life or variable universal could be the one for you.
How much does life insurance cost
Buying life insurance costs least when you’re younger. Let’s take a look at how much you could save by getting a life insurance policy when you’re in your 20s and 30s. Here are the average annual premiums for term life death benefits of $250,000 for people classified as "Regular" health who don't smoke.
Health profile and term length
Female, 10-year term
Female, 20-year term
Female, 30-year term
Male, 10-year term
Male, 20-year term
Male, 30-year term
*Limited quotes available. Data source: Compulife Quotation System as of Dec. 2019.
As you can see, you’ll save thousands over the life of a term policy if you buy when you’re younger.
Experts recommend buying life insurance when you’re young, but what if you can’t afford it? Fuad Sahouri, vice president of Sahouri Insurance, said you can buy what you can afford now and increase the value as your salary increases.
“For example, I’m working with someone right now that can only afford a $15,000 policy a year, but we’re finding them a policy that meets their needs. Within that policy, we’ve added riders which give them the ability to increase their death benefits without proving their health,” Sahouri said.
If you’ve missed that window, you can still buy life insurance when you reach middle age.
“In short, it is almost never too late to buy insurance. It is generally accepted that you should get insurance as soon as possible once you determine you want/need it,” said Janine Golding, executive vice president of The Archer Financial Group.
How long do you need life insurance?
One of the most important questions to ask yourself is: why do I need life insurance? Why you need it and for how long influence what policy works best for you.
Reasons can include a mortgage, providing for loved ones after you’re gone, funeral expenses and paying off debts.
“If you’re a 35-year-old person with a family, you’re expected to work for another 30 years. Your family is expecting you to bring home your salary and provide for them for those years,” said Sahouri.
In that case, Sahouri said it’s wise to get a term life policy for 30 years. “That way, your family will not have to deal with an unexpected loss of income,” Sahouri added.
A person who may like a whole life policy is if you want to make sure your loved ones get a death benefit -- even if it’s smaller than a term life payout. This could be if you want them to pay for final expenses or if you have a child who will need long-term care after you’re gone.
What if you don’t have a family yet? Sahouri still recommends life insurance.
“If you don’t have a family yet, you’re still going to leave someone in your life with expenses when you die. I recommend people to start out with at least a $100,000 of a term policy or whole life policy,” Sahouri said.