Life insurance is often considered primarily for people with families or mortgages. However, there are compelling reasons for young, single people to consider life insurance carefully.
Purchasing insurance when you are young and healthy can provide long-term financial benefits and peace of mind for you and your family.
Why Life Insurance Matters for Young Adults
Getting life insurance in your 20s or 30s may seem unnecessary, especially if you don’t have dependents. But there are several critical advantages to securing coverage earlier in adulthood:
Lock in Lower Premiums
The younger and healthier you are when you purchase life insurance, the lower your premiums will be. Life insurance companies assess risk based heavily on factors like age and medical history. A 20-year-old in good health will almost always qualify for better rates than a 50-year-old with chronic conditions.
Buying a policy in your 20s or 30s allows you to lock in a low premium rate for the duration of the term, which is usually 10 to 30 years. This protects you from potentially paying much higher premiums later in life if your health declines. It also shields you from rate hikes over time.
Accumulate Cash Value
Some life insurance policies, like Whole Life and Universal Life, have a cash value component in addition to paying out a death benefit. A portion of your premium goes toward building up this cash value over time.
The cash value account earns interest and investment returns, allowing it to grow each year your policy is in place. Getting life insurance at a younger age allows your cash value more time to accumulate substantial earnings. After several years or decades, this can amount to a considerable sum that you can borrow against for significant expenses if needed.
Protect Loved Ones
You may not have any dependents now, but you likely have family members or loved ones who are dependent on your income. This could include aging parents, siblings, or grandparents. Your untimely passing has the potential to put them in financial jeopardy.
Life insurance provides reassurance that debts and bills won’t burden your loved ones if you pass away unexpectedly. This is especially important if you have substantial student loans, medical debts, or other obligations. Life insurance proceeds can help ensure your family maintains financial stability.
Plan for the Future
Even if you’re single now, you need to plan for the likelihood of your life circumstances changing. Are you hoping to eventually marry and start a family? Will you need to support your parents later in life? Will your income become vital to supporting siblings or other relatives?
While you’re young and healthy, getting life insurance coverage now safeguards your future insurability. It protects you against the possibility of developing health conditions later that could either make you ineligible for coverage or cause much higher premium rates.
Many term life insurance policies also include an option to convert your coverage to a permanent policy later without requiring new medical exams. This allows you to secure future coverage at your current good health status.
Leave a Legacy
The proceeds from a life insurance policy can also be directed to charities or causes you care about deeply. This ensures you can leave a financial legacy to make an impact even after you’re gone.
What Types of Life Insurance Work for Young Adults?
There are several categories of life insurance policies to select from. The best type for you depends on your budget, needs, and financial goals.
Term Life Insurance
Term life insurance provides affordable coverage for a set period, typically 10, 15, 20, 25, or 30 years. If you pass away during the term, it pays out a lump-sum death benefit to your listed beneficiaries.
Premiums are lower for term life insurance since coverage expires at the end of the term period. There is no cash value accumulation. Given the limited coverage period, it is best suited for covering major financial priorities you anticipate needing for several years, like paying off debt or temporarily supporting dependents.
Term life insurance is an excellent choice for young adults who want basic coverage just to get them through the early adulthood years of paying off student loans, buying a home, or starting a family.
Permanent Life Insurance
Permanent life insurance policies, such as whole life and universal life, provide lifelong coverage as long as you continue paying premiums. Because coverage never expires, premiums are higher. However, permanent policies accumulate cash value over time that you can borrow against if needed.
This type of lifelong coverage guarantees long-term financial security. The built-in cash value component also allows permanent policies to function as an investment and financial planning tool.
A permanent policy may make sense for young adults who already have kids or others relying on them financially. It also works for those seeking stability to ensure their future insurability.
Final Expense Insurance
Some young adults are concerned about burdening family members with funeral costs and final medical bills after they pass away. Final expense life insurance provides an affordable way to cover these specific end-of-life costs.
Typically, final expense policies come with coverage amounts between $5,000 to $25,000. This is sufficient to cover your remaining medical bills and typical funeral and burial costs. With the policy in place, your loved ones can rest assured knowing your final affairs are taken care of.
Guaranteed and Simplified Issue Life Insurance
Obtaining life insurance may prove difficult or impossible for young adults with chronic health conditions or a family history of illnesses. Insurers may deem the applicant too high-risk for coverage.
Guaranteed Issue Life Insurance or simplified issue life insurance allows applicants to obtain coverage without medical exams or health questions. This makes getting coverage possible despite ongoing medical issues. The downside is that premiums are higher, and coverage amounts max out at around $25,000 to $50,000.
What to Consider When Getting Life Insurance in Your 20s or 30s
Purchasing life insurance requires weighing several factors to find the right policy for your needs and budget:
Cost of Premiums
The younger and healthier you are, the lower your monthly premium will be for the same coverage amount. Life insurance companies reward lower risk with better rates.
A healthy 25-year-old may pay around $21 monthly for $500,000 in 20-year term life insurance coverage. A 35-year-old could expect to pay $25 monthly for the same coverage. Premiums incrementally increase each year as you age.
Your gender, lifestyle habits like smoking, and medical history also impact your rates. Disclosing this information thoroughly and accurately is crucial when applying for coverage.
Read more: Life Insurance for Smokers vs. Non-Smokers
Coverage Amount
Choosing the right amount of life insurance requires calculations based on your financial situation. Your annual income, existing debts, financial dependents, and future financial goals are important factors to consider.
Online life insurance calculators can estimate how much coverage you need. You can also speak with an insurance agent to review your finances and policy options before deciding on an optimal coverage amount.
Type of Insurance
Carefully assess your budget, expected needs, and short and long-term financial goals to determine if a term, permanent, or final expense policy better suits your situation. An insurance agent can explain critical differences and make recommendations.
Term life insurance may be the right choice if you have limited income to devote to premiums but need basic coverage for 20-30 years. Meanwhile, permanent life insurance ensures lifelong security.
Provider Reputation
Be sure to thoroughly research and compare life insurers before purchasing a policy. Look for providers with strong financial strength ratings and a solid history of paying out claims quickly and fairly. This gives you confidence your beneficiaries will receive death benefit payouts as expected.
Avoid insurers with low ratings or excessive complaints regarding coverage denials and legal payment disputes. You want reliability during such a crucial time.
Steps to Getting Life Insurance in Your 20s and 30s
Below are the typical steps young adults should follow to secure the affordable life insurance coverage they need:
Determine the Policy Type
First, decide if you need term, whole, universal, or final expense life insurance based on your budget, lifestyle, and short and long-term financial obligations. Term life is the most budget-friendly option for temporary coverage.
Calculate Your Coverage Amount
Use free online life insurance calculators to estimate the death benefit you need. Or, consult an insurance agent to discuss your income, debts, dependents, and goals. They can provide guidance on suggested coverage limits.
Compare Quotes
Contact several highly rated life insurance providers to request premium quotes. Provide the same coverage amount and personal details to each for an accurate comparison. Look for the lowest rate.
Complete the Application Paperwork
Apply for coverage by thoroughly filling out the insurance company’s application paperwork. Disclose all medical history and lifestyle details, such as smoking or dangerous hobbies. Honesty gets you the best policy.
Undergo a Medical Exam
The insurer may require a medical exam to get up-to-date details on your health as part of the underwriting process. This may involve lab tests, a physical exam, and discussing your medical history with a doctor.
Start Paying Premiums
If approved for coverage after underwriting, begin paying your premiums to activate your life insurance policy. Be sure to pay premiums on time each month or quarter to prevent coverage lapses.
Gain Peace of Mind with Life Insurance
Given all of the benefits, life insurance can be an incredibly wise financial decision, even for single young adults in their 20s and 30s without kids or a mortgage. Taking advantage of your good health while you’re young locks in lower premium rates for life.
Life insurance also accumulates cash value you can tap into down the road. And most importantly, it guarantees your loved ones will be taken care of financially in your absence.
Speak with a trusted, licensed life insurance agent today. They can discuss your budget, lifestyle, plans, and potential risks to determine the right policy and coverage amount to meet your needs. The peace of mind knowing your finances are secure can’t be undervalued.
FAQs of Life Insurance for Young Adults
Why should a young adult get life insurance?
Young adults should consider life insurance to lock in low premiums based on their current good health, build cash value that can be borrowed against in the future, and protect loved ones from the burden of debts or expenses if they pass away unexpectedly.
What are the benefits of getting life insurance when young?
The key benefits are lower premiums than waiting until later in life, accumulating tax-free cash value over time that can be borrowed against, and future-proofing coverage before health declines.
What type of life insurance is best for young adults?
Term life insurance is usually the most practical and affordable option for young adults needing coverage for 10-30 years. Permanent life insurance builds cash value but has higher premiums.
How much does life insurance cost for a 20-year-old?
A healthy 20-year-old may pay $15-25 monthly for $250,000 to $500,000 in term life insurance coverage. Rates vary based on health, gender, and other factors.
Does life insurance for young adults build cash value?
Permanent life insurance policies like whole life and universal life build cash value that grows tax-deferred. Term life insurance does not build cash value.
