Should I Get Life Insurance In My 20s?

Should I Get Life Insurance In My 20s

Question: Should I Get Life Insurance In My 20s? Answer: If nobody depends on you financially, or you do not have large amounts of debt, then it may not be the best use of your money.

However, if you do have financial dependents or college loan debt, life insurance is a way to protect them financially, which you will hopefully never have to use.

With these pivotal events come expenses like student loans, mortgages, childcare costs, and more people that rely on you and your income. By purchasing life insurance in your 20s, you can take an essential step in the right direction towards strengthening your financial future.

Should I Get Life Insurance In My 20s?

If you’re reading this and thinking that life insurance isn’t necessary until later in life, hear us out—if you’re in your 20s, now might be the perfect time to consider life insurance. Here’s why.

5 reasons to buy life insurance in your 20s

Here are five reasons why you might want to purchase a policy while you’re young:

1. The rates are cheap

The younger and healthier you are, the cheaper your rates will be — which is why it’s best to apply for life insurance as soon as you identify a need for it. As you age, your life expectancy is shorter and you’re more likely to develop health conditions, so insurers hike up your rates. But if you apply for coverage in your 20s, you can lock in a low premium for years – or even the rest of your life if you opt for a whole life policy.

2. You’re married

Many people tie the knot in their 20s. If you’re married —or planning to get married — you might want to take out a life insurance policy to replace your income and protect your spouse financially. If you die prematurely, your policy would kick in to pay for things like the mortgage or rent, credit card bills or car loans. It may also help your spouse maintain the lifestyle they’re accustomed to.

3. You’re having a baby

If you’re a parent, it’s a good idea to buy coverage that can help take care of your children if you were to die prematurely. Most young parents buy a policy that carries their kids through college, when they enter the workforce and start earning their own money. You can either name an adult beneficiary to manage the money according to your wishes, or work with an attorney to set up a life insurance trust. The trust outlines when and how the funds should be distributed to your kids.

4. You’re in debt

Let’s say you have student loans, like many twenty-somethings do. If you die before paying off a private loan, your beneficiaries will be responsible for those repayments. To prevent that from happening, consider buying a life insurance policy. If you die, your beneficiaries can use the proceeds to settle any outstanding debts. They can also use the money to cover your funeral costs and final expenses.

5. You want to start investing

If you buy permanent life insurance at an early age, your premiums could grow into a sizeable cash asset as the years go by. Once you’ve built up enough cash value — which usually takes 10 to 15 years — you can start taking out loans against your policy. Or, you can surrender the cash value and funnel that money into other investments. However, life insurance isn’t as effective for investing as other tools like a 401k or IRA.

Why you might not need life insurance in your 20s

It is also important to note that, in some cases, life insurance might not be an immediate need for 20-30-year-olds. If you are single with no dependents (including your parents and grandparents) and no significant debts like student loans or a mortgage, you can likely hold off on purchasing life insurance. However, even if you do not need it quite yet, purchasing life insurance should be on your radar once you begin to take on some significant expenses and responsibilities.

Pros and cons of buying life insurance in your 20s

Pros

  • Lock in low premiums. Keep a premium based on your current health before you get older and potentially develop health conditions.
  • Relatively inexpensive. A term life policy can be budget-friendly depending on which coverage amounts you choose.
  • Cash value growth. If you purchase a whole life policy, you give your cash value more time to grow.

Cons

  • A lower percentage of use. At this age, you may not have many people depending on your income, so life insurance can feel like an extraneous expense compared to getting life insurance at an older age.
  • Low return on investment. Instead of paying an insurance premium, you could potentially get a higher return by investing your money elsewhere.

Benefits of getting life insurance in your 20s

The most significant benefit of purchasing life insurance in your 20s is this: the earlier in your life you get it, the more affordable it will be. If you are also healthy, that is even better. Life insurance gets more expensive the longer you wait (8-12% every year). It is better to act now while you are young, rather than delaying until later in life—when it will inevitably be more expensive.

One of the biggest barriers to young people getting life insurance coverage now is that many overestimate the cost and difficulty of obtaining life insurance. Life insurance is more affordable and less intimidating than many people make it out to be. According to our Financial Legacy Index, 33% think life insurance is not affordable, and 24% think it is challenging to get. However, the 2018 LIMRA Insurance Barometer Study found that 44% of millennials overestimate the cost of life insurance by five times the actual amount. Many millennials can get enough coverage to protect their family’s financial future for the cost of one or two restaurant meals per month.

What type of coverage should people in their 20s get?

We’re glad you asked. For most millennials, term life insurance is the way to go. Term life insurance is the most affordable and straightforward type of life insurance and allows for policy customization to offer protection when you need it the most. We covered this above with an example of how term life insurance can be tailored around a mortgage term, but other common timelines for term policies can include: until your children finish school, you retire, or you finish paying off a loan.

Conclusion on life insurance in your 20s

Life insurance is an essential part of your financial legacy. While most Americans (82%) value establishing a strong financial legacy, many people (38%) lack confidence they will leave one behind. By setting up life insurance in your 20s, you can take an essential step in the right direction towards solidifying your financial future. Additionally, if you can lock in an inexpensive policy early on in life, you can choose to add additional policies as your needs change over time.

So, while life insurance may not be on your radar in your 20s, know that it is an ideal time to start thinking about it. The benefits of purchasing life insurance early on in life and locking in the best rate far outweigh the financial obligations. 

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