Are your 20s too early to start thinking about life insurance? Many people might think so, but actually that’s far from the truth. In fact, for certain policy types, your 20s can be the best time to consider purchasing a policy. Here’s what you should know about how life insurance can be useful when you are in your 20s, how much a policy will cost (it might be much less than you think) and the types of policies that might be a good fit for you.
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Why You Should Consider Life Insurance in Your 20s
There are a few reasons why younger adults might want to consider purchasing a life insurance policy, especially a more affordable one such as term life insurance.
Protecting Your Loved Ones
If you have any dependents, a life insurance policy can replace your lost income if you die. This way, anyone currently relying on your income will still be able to support themselves.
Even if you don’t have any dependents, your passing can affect your parents or siblings financially. Funerals and other end-of-life expenses can go into the thousands of dollars — life insurance can cover these costs in case something happens to you.
If your parents or someone else co-signed your student loans or credit cards, they may become responsible for those debts if you pass away. If you buy a life insurance policy you can guarantee that those debts will be paid off, relieving your loved ones of that burden.
Covering Future Debts
You might be planning to buy a home or a car in the future. If you are married, or a family member is likely to cosign those loans with you, your debt will remain even when you are not there to make payments. Depending on the size of the death benefit you choose, your life insurance policy will be able to replace your income or pay off the loans. Generally, life insurance policies are cheaper when you are young, and monthly premiums usually remain locked in for the policy duration. That means that sometimes it may be a good idea to lock in lower rates now to cover debts you are planning to take out in the future.
Building Wealth Through Cash Value
Permanent life insurance policies, such as whole life insurance, build cash value over time. Part of your premium goes into a savings component that then grows tax-deferred. This means you won’t pay taxes on the growth until you withdraw it.
You can borrow against the cash value of your policy tax-free or withdraw it for emergencies or investments. This can provide funds for significant life events or supplement your retirement income. Loans against cash value are given based on how much money you have put into the policy, which means that you don’t have to go through a long pre-approval process. Starting a policy in your 20s allows more time for the cash value to grow.
Types of Life Insurance for 20-Somethings
There are a few types of life insurance to choose from. Term life insurance is generally cheaper but only covers you for a set period of time, while whole life and universal life insurance will cover you for the rest of your life. Which policy you should choose will depend on your goals and current situation. Here’s what you need to know.
Term Life Insurance
Term life insurance provides coverage for a set period of time, usually between 10 and 30 years. If you pass away during this time, your beneficiaries will be paid the death benefit from the policy. If you outlive the policy, then it will expire. Since this is likely, especially when you are younger, term policies offer higher coverage amounts and much lower premiums than other types of life insurance.
As a young adult, you can secure substantial coverage without high costs. The average term premium for a healthy young adult is between $15 and $18 a month. Some term life policies allow you to convert to permanent insurance later. This means you can adjust your coverage as your life changes without starting over.
Whole Life Insurance
Whole life insurance offers lifetime coverage with fixed premiums. Part of your payment goes into a cash value component that grows steadily over time. This cash value can then become a financial asset for you in the future.
By starting a whole-life policy when you’re young and healthy, you are able to lock in low premiums. Over the years, as you make your payments, the cash value of the policy will build up. You can withdraw this accumulated value or borrow against it in the future to help fund any significant expenses.
Whole life insurance generally comes with higher premiums than term life insurance. It’s also a more long-term financial commitment.
Universal Life Insurance
Universal life insurance gives you access to flexible premiums and adjustable death benefits. The growth of the cash value is tied to market interest rates, which can vary. This means the cash value can grow faster when interest rates are high, though the opposite is also true.
Because payments are flexible, a universal life insurance policy can accommodate changing incomes, which can be helpful when you are younger and your finances aren’t stable yet.
Market fluctuations and changes in interest rates can affect the growth of your cash value. Universal life insurance policies require active monitoring and may need premium adjustments to keep the policy effective. However, in many cases, monthly premiums for a universal life insurance policy can be cheaper than a whole life policy.
Find a policy that works for you
There are a range of affordable Fidelity Life products to choose from based on your situation and financial responsibilities.
Factors to Consider
There are several factors you should consider when deciding on which life insurance type is right for you. Taking the time to evaluate these can help you select a policy that will fit your needs and support your future plans.
Budget
Start by assessing your current income and living expenses. Look at how much money you earn and what your regular costs are, such as rent, utilities, food and entertainment. This helps you determine how much you can comfortably allocate to life insurance premiums without straining your finances. It’s also a way to see how big your life insurance benefit should be if you are trying to use it as a way to replace your income for your loved ones.
Next, think about how much coverage you need versus how much you can afford. It’s usually a balancing act — higher coverage comes with higher premiums, while basic protection will be cheaper. If affordability is a priority, term life insurance might be a good option since it generally has lower premiums. If you’re interested in long-term benefits and can handle higher premiums, permanent life insurance, such as whole life or universal life, could be a better fit.
Health
Applying for life insurance while you’re young usually means you’re in better health. Insurance companies may often offer lower premiums to younger, healthier individuals. By securing a policy now, you can lock in these lower rates before any potential changes to your health in the future.
Your medical history can influence the cost and availability of life insurance. Pre-existing conditions may increase premiums or limit your options. However, it’s important to provide full and honest disclosure of your health information when you apply for a policy. If you don’t disclose health information, your policy may be canceled in the future, or claims could be denied.
Lifestyle and Habits
Your lifestyle choices can also affect your insurance costs. Habits like smoking, excessive drinking or drug use can lead to higher premiums because they pose additional health risks. However, you may be able to get lower rates if you quit smoking for at least a year before you apply for a policy. Making healthy lifestyle choices both benefits your well-being and reduces the cost of your life insurance premiums.
If you engage in hazardous activities or work a dangerous job, it can also impact your eligibility and premiums. Hobbies like skydiving, rock climbing or occupations in high-risk environments may lead insurers to charge more or impose certain exclusions. For example, your policy might have an exclusion clause that states claims will not be paid out if your death occurs while you are rock climbing.
Future Financial Goals
Think about possible life events you are anticipating in the future, such as getting married, having children, or purchasing a home. These milestones also increase your financial responsibilities. You can decide on the size of your death benefit based on what you are planning for your future. If you die, your death benefit will need to be large enough to pay for these additional financial responsibilities.
You should also think about how life insurance fits into your overall financial strategy. While life insurance policies are often treated as a safety net, a permanent policy can be part of a broader plan for saving and investing.
Tips for Choosing the Right Policy
Now that you know what you should look at when deciding what type of life insurance to get, you can decide on the right provider and policy for you. Here are a few tips for picking the right policy.
Research and Compare Policies and Providers
It’s always good to start by researching the insurance companies you are considering. Check both their reputation and financial stability. Insurance companies with strong financial standing are a must when you want to get a policy. After all, a company with strong finances is more likely to be reliable when you need them sometime in the future.
Read customer reviews and ratings online to see how the providers you are considering handle claims and customer service. Compare ratings and reviews between providers, and check whether a provider has had any legal issues in the past. This information can help you choose a provider you can trust.
Before you choose a policy look closely at the specifics and “fine print”. Check the coverage amounts, terms and any exclusions. When you understand the differences between different policy types, you’re in a better position to choose something that will help you with your financial goals.
Consult a Licensed Insurance Agent
Analyzing and comparing policies by yourself can get confusing. Since this is a big decision that might have an effect on your finances for much of your life, it can often be a good idea to consult with a licensed insurance agent before you sign anything.
An agent can offer you advice based on your individual financial situation. They can help you make sense of complex insurance terms and conditions. With their expertise, you can make a choice that will align with your strategy and get the coverage you need without straining your finances.
An agent’s job is to make sure that your life insurance, whether that’s a term or permanent policy, will fit into an overall financial plan. They can also assist you with budgeting for premiums and balancing your other financial priorities.
Review Your Policy Regularly
Once you have a policy, it’s important to review it every now and again and adjust it as necessary. Life changes over time, and your insurance needs may change too. For example, you may have gotten a smaller term policy to offset the risk of your mortgage, but now you have more children and would like your coverage to be larger so that it can take care of them as well.
It’s a good idea to reassess your coverage when major events occur, like marriage, having children or buying a home. Update your beneficiaries and coverage amounts as needed. Doing this regularly allows you to keep your policy aligned with your current situation.
If your policy has a cash value component, keep track of how it grows. When you review your policy regularly you can stay informed about its performance. You can then make adjustments to premiums or coverage to stay on course with your goals.
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Final Thoughts
Getting a life insurance policy in your 20s may have advantages. The policy can protect your loved ones and also help you build wealth over time. If you start early, when you are younger and relatively healthy, you can secure lower premiums and have more options available to you. Fidelity Life has a range of affordable policies to suit your financial needs — get a free life insurance cost quote today, and see how we can help you!
At Fidelity Life, our goal is to make life insurance simple, affordable, and understandable for everyday families. This content is intended for educational purposes only. Each post is carefully fact-checked, reviewed, and updated regularly to ensure the information is as relevant as possible. We encourage you to speak with your insurance representative if you have additional questions and make sure you read your policy contract to fully understand your coverage.
