Life insurance is generally not top of mind when you’re a young adult (under 30). But, I promise you that it’s important to think about life insurance if you plan to keep on living! In this post you’ll learn about the benefits of life insurance for young adults, what type to get, and how much coverage you should purchase. You’ll also learn what factors determine how much life insurance costs.
When you are young, life insurance cheapest. If you ever plan to start a family, own a house, and have children, then your best strategic bet is to get life insurance while you are young. Lock in a cheap premium that will cover you for decades.
Each year that passes, the rate you’d lock in climbs a little higher. Once you hit 40, your life insurance rate tends to take a big step function up. Part of the reason is due to age, but a lot of the reason is simply due to increased health issues and a higher chance of death.
Get Life Insurance While You’re Young
I know, as a young adult, you’ve got your whole life ahead of you. You’re dating, working, trying to get the adult job, and having lots of fun on the weekends. You might even be saddled with student loan debt.
Just like how you need to start maxing out your 401(k) for retirement as soon as you start work, you need to strongly consider getting life insurance as an adult.
Start being an adult sooner, rather than later!
The average student loan debt is roughly $39,351 in 2021. That’s a lot of money to pay off, especially if you still need to save for retirement. Meanwhile, if you go to graduate school, like I did for my MBA at UC Berkeley, the average graduate student loan debt is roughly $71,000 in 2021.
If for some unfortunate reason you die young, and have private student loans, your family members would need to pay them off. If you had a co-signer on your loans, then he or she would have to as well.
If you have student loan debt, then you should definitely consider getting a life insurance policy to cover your debt so no burden is placed on your loved ones.
One of the easiest ways to get life insurance is through your employer. You should also check online, through a trusted life insurance marketplace like PolicyGenius, to get multiple offers from the best life insurance carriers.
What’s The Right Amount Of Life Insurance For Young Adults
The right amount of life insurance is enough life insurance to pay off all your liabilities + 10%. If you have no liabilities and no dependents, then you probably don’t need life insurance for now. But if you plan to get a mortgage, have children, and raise a family, you should estimate what these future costs might be.
For example, the median home price in America is $250,000. If you put down 20%, you will have to take on a $200,000 mortgage. If you plan to have one kid and support him through college, you can add another $250,000 in cost. In such a scenario, you should probably get $200,000 – $450,000 worth of life insurance over a 20 year term.
Bottom line is: the younger and healthier you are, the cheaper premium rates you can lock-in.
How Much Do Life Insurance Premiums Increase
Life insurance premiums usually increase between 5 percent to 10 percent a year. In other words, if you are a 25-year-old female with a policy that costs $30 a month, expect to pay double the amount in 7 – 14 years.
According to New York Life, one of the largest life insurance companies in the world, only ten percent of Millennials have enough life insurance coverage. There is a 78 percent shortfall between what they have versus what they need.
Of course, what you need is subjective, since plenty of people go on about their lives without life insurance. However, New York Life believes the average Millennial (born 1980 or later) needs roughly $500,000 in life insurance coverage. Meanwhile, most young adults just have 22 percent of coverage, if any at all.
Factors That Determine The Price Of Life Insurance
The younger and healthier you are, the cheaper your monthly life insurance premiums. But age and health aren’t the only factors.
Other risk factors include:
- Pre-existing health conditions, like diabetes
- Occupation choice
- Lifestyle habits – scuba diving, sky diving
- Your weight based on BMI
- Your nicotine usage
- Drug usage
The fact of the matter is that nobody stays the same level of health forever. You are generally the healthiest when you are young. If you want to learn more about what determines premium prices, check out this extensive post on how much life insurance costs by age and gender.
After the age of 40, I decided to check out my snoring and occassional sleep apnea. That was a big no-no as my desire to treat my snoring and sleep apnea was recorded on my medical records. When I applied for another $1 million term life insurance policy, my rate increased 10X to $400/month!
If you plan to get life insurance, get it as young as possible. Further, get life insurance BEFORE seeing the doctor for non-life-threatening issues.
Best Type Of Life Insurance For Young Adults
There are two types of life insurance: permanent life and term life. I absolutely recommend going with term life insurance to save money.
- Permanent Life: Permanent life, also know as whole life insurance is the expensive type of life insurance with a cash value. Think about it like building equity in a house. It stays with you until you pass. As long as you pay the premiums, your policy is active. There are no time limits on these policies. Whole life insurance also has a cash value you can draw from as needed eventually, once the value builds. The difference will be taken out after your death. Unless you have millions of dollars already and are pushing up against the estate tax exemption limit, I would NOT get whole life.
- Term Life: Term life insurance is the choice for young adults. You can buy coverage for 5, 10, 15, 20, 25, 30 years. Term life insurance is cheaper and easier to access. Term life builds no cash value. Think about term life insurance like renting. Once the term is over, you’re done. But it served its purpose by insuring your life. Use your 401(k), IRA, and after-tax portfolios to invest for retirement instead. It’s more efficient.
Now that you agree that term life insurance is a better choice for young adults, be aware about employer-based life insurance and final expense or burial insurance. Please inquire with your employer about life insurance benefits as they should have a very basic and affordable policy.
There are many types of life insurance options to choose from. Best to familiarize yourself with them all to make the best choice for you and your family.
Life Insurance Young Is Forward Thinking
If I could rewind time, I would have got a $1 million policy for 30 years when I turned 28. 28 is when I bought a $1.52 million house with a whopping $1.2 million mortgage. I was sweating bullets because I invested all I had into the property!
I could have locked a cheap $40/month or less rate and have the option to cancel in the future if my life didn’t turn out as planned. But now, I have two children under four years old and a non-working spouse. All the pressure is on me to provide financially.
You will likely live a long and eventful life. At the very least, I’d check the latest term life insurance policy rates for free and see what you can get.
The best way is to apply on PolicyGenius for free, the #1 life insurance platform that has the best life insurance carriers compete for your business. My wife used PolicyGenius and was able to get more life insurance for less money than what she was paying before.
Get multiple quotes all in one place for no cost and no obligation with PolicyGenius. I’ve known the founders for years and they are great.
Cherish your youth! Time goes by quickly!