Our guide to adulting and financial protection.
"Should I get life insurance in my 20s?—hmmm.” This question might seem out of place amidst your bustling life filled with early career moves, adventures, and maybe even paying off student loans. But it's an essential consideration, especially when unraveling the financial ties you might share with loved ones.
As a young adult, navigating the complexities of life and financial planning can initially seem rough. One of the most critical decisions you’ll make is whether to invest in financial protection, such as life insurance. Of course, it's common to question the need for it at a young age. I mean, who wants to talk about death in their 20s!? But, understanding the benefits and potential drawbacks is vital to making an informed decision and is more critical than most young adults might think.
Main points
Early advantages: Securing life insurance in your 20s offers lower premiums and greater benefits. Young adults enjoy up to 30% lower rates than those in their 30s, making it a cost-effective decision for your coverage needs1.
Debt management: Life insurance provides a safety net for financial obligations like student loans or co-signed debts, ensuring these do not become a burden for family members in case of unforeseen events.
Future-proofing finances: Life insurance can be an excellent tool for long-term financial planning. Adapting to changing needs over time, such as marriage or buying a home.
Understanding policy types: Knowing the difference between term and whole life insurance is crucial. Term life is more affordable and suitable for young adults, while whole life offers lifelong coverage and a savings component.
Right coverage amount: Tailor your life insurance coverage to your financial situation. Generally, 5 to 10 times your annual income is recommended, adjusted for debts and dependents.
Accessibility and simplicity: Modern insurance processes are streamlined, offering easy access without extensive medical checks.
- Take advantage of life insurance while you’re young
- Lower premiums, greater benefits
- Addressing debts and liabilities
- Long-term financial protection and planning
- Life Insurance is an estate planning tool
- Understanding the different types of life insurance
- It’s easier than you think
Take advantage of life insurance while you’re young
Life insurance is not just about leaving a legacy—it's about financial responsibility and planning. If you're in your 20s or 30s, the thought of life insurance might seem premature, but it's actually a strategic step in financial planning. Here are a few benefits of acquiring life insurance while you’re young:
1. Lower premiums, greater benefits
The most significant advantage of securing life insurance in your 20s is the lower cost of premiums. When it comes to the cost of life insurance for individuals in their 20s versus those in their 30s, a 2023 study by Policygenius states that many young adults overestimate the cost of life insurance. It was found that the actual cost of a 20-year term policy was only $165 per year, much lower than what 44% of millennials estimated3.
On the other hand, the average cost of life insurance for someone in their 30s is around $30 per month for a term policy and about $200 per month for a whole life policy3. Insurers view younger individuals as lower risk, translating into more affordable coverage rates. Typically, the younger you apply, the lower the premium, so there’s no better time to build a financial safety net than now.
The average cost of life insurance paired with age
2. Addressing debts and liabilities
Many young adults have significant financial obligations like student loans or co-signed debts. As of 2023, the average federal student loan debt for borrowers is $37,338, while the average private student loan debt is even higher at $54,921, according to the Education Data Initiative4. Life insurance can provide a crucial safety net, ensuring that these substantial debts do not burden your family in the event of your untimely passing.
3. Long-term financial protection and planning
Investing in life insurance at a young age can be a cornerstone of long-term financial planning. It's not just about covering immediate debts; it's about securing your financial future for you and those you love. Specific life insurance policies can adapt to your evolving needs as you navigate life’s milestones, such as marriage, homeownership, or even children.
Life Insurance is an estate planning tool
Estate planning—you've probably heard the term tossed around, often in the context of something only the wealthy or retired folks need to worry about. However, it’s more than that and can be a handy strategy for anyone looking to secure the passing of assets. Estate planning is essentially a game plan for your assets—ensuring that what you've worked hard for is used exactly as you intend, both during your life and after. Think of it as a map that charts how and where your belongings and savings will be distributed.
Life insurance is a vital tool in your financial toolkit for things like estate planning. As young adults, you're likely starting to accumulate assets, like your first career job and possibly a new car or home or even starting a family. Integrating life insurance into your estate planning is like setting up a safety net for all these new adventures. It’s never too early to start thinking about protecting your assets and loved ones.
Understanding the different types of life insurance
When considering life insurance in your 20s, it's crucial to understand the two main types: term and whole life insurance. Term life insurance offers coverage for a specific period and is generally more affordable, making it an attractive option for young adults. While more expensive, whole life insurance provides lifelong coverage and includes an investment component that can accumulate cash value.
Determining the right amount of coverage is a delicate balance. A 2023 Insurance Barometer Study by LIMRA and Life Happens found that 41% of insured and uninsured adults report insufficient life insurance coverage. This is even more severe among younger generations, with 49% of Gen Z adults and 47% of millennials acknowledging a need to get or increase life insurance protection2. Experts recommend a coverage amount of 5 to 10 times your annual income, which should be adjusted based on your debts, financial dependents, and future goals.
It’s easier than you think
The journey to securing life insurance in your 20s and 30s is less intimidating than it appears. Modern insurance providers have streamlined the application process, making getting coverage without extensive medical examinations possible. This ease of access notably appeals to young adults who value simplicity and efficiency in financial transactions.
If you're in your 20s, now is the time to consider life insurance. It's not just about the financial benefits. It's about peace of mind regarding loved ones and a proactive approach to your financial wellness. Evaluate your current and future financial obligations, and consider how life insurance can fit into your broader plan.
1 – Life Insurance Market Research Association (LIMRA), "2022 Life Insurance Statistics and Trends," LIMRA.com
2 – LIMRA and Life Happens. (2023). 2023 Insurance Barometer Study. [online] Available at: https://www.limra.com/en/newsroom/news-releases/2023/new-study-shows-interest-in-life-insurance-at-all-time-high-in-2023/ [Accessed 18 Dec. 2023]
3 – Policygenius. (2024). Best Life Insurance for Young Adults. [online] Available at: https://www.policygenius.com/life-insurance/best-life-insurance-young-adults/ [Accessed 18 Dec. 2023].
4 – Education Data Initiative. (2023). Average Student Loan Debt. [online] Available at: https://educationdata.org/average-student-loan-debt [Accessed Date: 18 December 2023].
