Many young adults believe in financial life planning. However, life insurance is rarely considered when it comes to creating a plan. When you talk about financial life planning, what comes to mind for many young people is having a strong financial foundation, building an emergency fund, creating a budget, saving to pay off debt or for retirement.
Life insurance is often forgotten because, to a young person, death is still a long way away. If you are young, healthy and you don’t engage in habits or activities that could compromise your health, why would you have to think of dying? Statistically, many healthy young individuals have died within the last twenty-four hours. So, death is not necessarily only about age and or how healthy you are.
According to a survey conducted in 2017, about 65% of young adults between the ages of 18 to 29 years old did not have life insurance. Out of this percentage, about 71% thought that it was not necessary because they were still young and in good health.
Interestingly, there are several reasons why you should consider buying life insurance sooner rather than later. In this post, we will explore the top reasons to buy life insurance when you are young.
Life insurance is something everyone needs when building a good financial life plan. However, only a few people have it, while many don’t even think about it. It’s very easy to ignore the necessity of buying life insurance when you are young and strong. However, you have to know that the longer you wait, the higher the chances are that something may happen before you get around to purchasing a policy.
Substitute lost income
One of the reasons to buy life insurance when you’re young is that it creates financial security for your family or loved ones if you die. Even if you are in your 20s, you should give this a serious thought. You are not going to be in your 20s forever and sooner or later, you may want to start a family, which will lead to people depending on you. If you don’t make appropriate arrangements for those closest to you, there is a high chance that they will be in a tight spot financially if you die unexpectedly. You should purchase an adequate life insurance policy so that you won’t leave your family or spouse without financial protection. The potential payout will greatly help them pay the household bills or the childcare cost.
Pay off debt
The fact that you pass away does not mean that your debts will die with you. If you and your spouse co-signed for the mortgage or any other loans, the responsibility of paying off the debts or mortgage would fall to your spouse. If they are unable to pay, the creditors may decide to collect the debt from your estate. Although this may resolve the issue, your heirs might find themselves without a roof over their heads. When you buy life insurance, you guarantee the financial security of those you leave behind.
If you have student loans, you may want to consider getting life insurance. While government student loans forgive your debt if you die, private student loans may become the responsibility of a co-signer in the event that something happens to you. Since most people take out student loans when they’re relatively young and healthy, you may be able to get an inexpensive term life insurance policy to cover the value of your student loans during the standard 10 year repayment plan.
Cover burial expenses
Although the demise of a loved one is painful, necessary tasks like planning (and paying) for a proper burial still need to be taken care of. Unfortunately, the cost of even a simple funeral service can quickly add up to several thousands of dollars. Of course, you can pre-pay for your own funeral, but it is not in the habit of most young people. Unfortunately, death can occur at any time. With life insurance, you don’t have to worry about what happens after you are gone because the policy will more than cover for it.
Strategic business planning
For business owners, it is crucial to have life insurance. With such a policy, you are assured that your obligations are well covered, and your years of hard work won’t be wasted. If you are in a partnership business with someone else, it is recommended that both parties buy life insurance. This is to secure the future of the business and the parties involved at the demise of one of the partners.
Grow cash value
There are two major types of life insurance: term life and whole life. The term policy is active for a specific period. At the expiration of this plan, if the policyholder is still alive, there will be no payout. However, the whole life policy offers permanent coverage for the policyholder, and it only comes to an end when they cancel it or die. This allows you to grow your cash value over a long period. This can be an attractive prospect for many people. The cash value can act as an additional cushion that can be used in certain circumstances when it has accumulated sufficient value. It can be quite handy in cases of financial distress.
Life insurance can act as an investment tool, especially if you opt for the universal life policy. This type of insurance is tied to a particular investment product. Depending on the performance of the product, the policyholder will receive a dividend payment, which can help attain goals such as estate maximization or tax-deferred growth, adding diversity to an investment plan. But, before purchasing this type of product, it’s important to read the fine print and to make sure your traditional investment vehicles are maximized.
Taxes at death
When an individual dies, it is assumed that he or she sold off all of his assets right before his or her death. There are often taxes that need to be paid before the heirs can access their inheritance. Owning a life policy can help your heirs pay off the estate taxes or offer them quicker access to funds if they are designated as beneficiaries.
Peace of mind
The future is unpredictable. With life insurance, you have the peace of mind that your loved ones will be financially protected in the case of any eventuality. You don’t need to go overboard with the amount of coverage. A small life cover policy can make a world of difference in the financial protection of your loved ones.
Life insurance is affordable
A popular excuse that young people give for not purchasing life insurance is the perceived high cost. The truth is that life insurance is affordable for many people. Buying a life cover policy at a young age makes it even more affordable. This is because the younger and healthier the insured is, the lower the premiums the insurer demands are. However, if you have any pre-existing health condition or if you smoke, your premiums may be higher even at a younger age. Additionally, choosing a term life insurance is less expensive when compared to permanent life insurance.
There are many factors that affect life insurance premiums but your age and your health are arguably two top determinants, so why not lock in low premiums now? When you buy a term policy the rate is set and you pay the same premium for the duration of your policy term. Some policies allow you to add on extra insurance later on or extend the life of your term policy if you need to. Sitting with an advisor can help you determine what makes the most sense for your current lifestyle and life plans.
While you’re still eligible
Certain illnesses or health conditions can render you ineligible for most life insurance policies. Taking advantage of the now, while you’re hopefully still healthy, might prove to be beneficial. If you wait until later on in life, and unfortunately get sick in that time, you may no longer be eligible.
You plan to buy a home
Being a homeowner is a great accomplishment, you have an asset you should be proud of. When you die however, the last thing you want is to leave a family member with the burden of paying for your home. That’s why having life insurance in place that can pay off the mortgage balance is important. Buying a term life insurance policy to pay off your mortgage or adding to an existing term, permanent, or universal policies to cover the cost of your home may help protect your family.
Getting married or starting a family
Taking care of your family is important. Having a life insurance policy in place will help ensure that if something happens to you, you’ve equipped your family with the financial support they may need to stay in your current home, keep up with day-to-day expenses, help cover debt, and more. Most families budget and plan their lifestyles based on both incomes so a sudden and unexpected change in those plans could leave your spouse in financial hardship.
Life insurance at a young age as a form or risk avoidance especially when it is easily affordable. We never know when our time will come and to take the attitude that nothing will happen to me because I’m young and healthy is foolhardy. We cannot control our destiny but we can help in the financial challenges that may arise for those left behind.
As mentioned, it is a good idea to discuss its applicability to your own personal situation. We have these conversations regularly and clients sometimes come away with something they did not think about. That aha moment. Different choices or plans for your life could determine when, how much, and what kind of life insurance would make sense for you. The earlier you get a policy may help you save money, plan for your family, and invest in your future. Foresight is a form of Keeping Life Current.