Should You Get Life Insurance in your 20s?
Most young Americans are not thinking about life insurance policies, but they should. Life insurance is the ultimate financial tool for those big “what if” moments. It can be useful even when the death benefit is not triggered, as long as it is used appropriately. Life insurance is not a panacea, and some younger Americans may not have the resources to devote to large policies. But it is a mistake to assume that only older couples with children and homes need life insurance.
All else being equal, it is always cheaper, and sometimes substantially less expensive, for a younger person to buy insurance than an older person. This means the potential benefits of insurance can be just as large and cost much less—or maybe much larger and cost about the same. Without other considerations, life insurance for a 22-year-old is a better proposition than life insurance for a 55-year-old.
Reasons to Buy Life Insurance Young
The most obvious reason to buy life insurance is when you have clear insurable interests and want to be financially protected from a catastrophic accident. For example, you may have large debt obligations from student loans or a mortgage that you do not want to be passed on to someone else.
You might also have a spouse or children who rely on your income, parties who could depend on insurance claims to survive if something unfortunate happened to you.
Insurance can have other features besides a death benefit, however, which means there might be other good reasons to buy a policy. Some policies provide support for certain medical problems, such as cancer or paralysis. Permanent life insurance policies can serve as tax-advantaged savings vehicles through the accumulation of cash value.
Federal law prohibits insurance providers from selling policies on the basis of their cash value, although this almost certainly happens.1 This does not mean it is always a bad idea to buy insurance for its possible cash value accumulation. In some circumstances, cash value might accumulate money at a faster rate than other investments with less risk and more favorable legal ramifications.
Pros and Cons of Getting Permanent Life Insurance in Your 20s
Pros
- Lower premiums than if you get insurance when you’re older
- Death benefit coverage for longer period of your life
- Accumulated cash value can be used while you are alive
- May have option to increase coverage at a later date without a new medical exam
Cons
- May have to pay premiums for a longer amount of time
- May not need the insurance coverage, at least initially
- Money put to premiums could have been used elsewhere (opportunity cost)
To learn more about getting the right coverage for your needs, give the Nickerson Insurance Agency a call today!
