Think you are too young to need Life Insurance? Think again …

Many young people do not think about the importance of life insurance or whether it is something they need to add to their financial plan.  That is probably because the concept of illness or mortality is not top of mind at that stage of life. 

But death can be sudden, and preparing for the unexpected is a smart idea.

Why younger adults need life insurance

Life insurance is part of a solid financial foundation, even in your 20s. Since death can often be untimely and unforeseen, life insurance is important. While this isn’t a topic most adults enjoy discussing, it is critical.

Life insurance policies ensure that the people in your life are cared for in the event of your death. It helps replace lost income from your paycheck that your spouse or children depend on. And even if you are single, that might change as you hit your 30s or 40s. 

Ways you can use life insurance

Life insurance not only replaces lost income, but it also helps to settle your estate and assist in carrying out your final wishes. Life insurance can help to pay outstanding debts like: 

  • Student loans
  • Credit cards
  • Auto loans
  • Mortgages
  • Business loans and debts (even side hustles can have business debt)
  • Miscellaneous debtors who petition your estate for payment

Life insurance can also provide a tax-free payout to people and things that are important to your legacy, such as:

  • Parents
  • Siblings or other family members
  • Children
  • Spouse, partner or cohabitant
  • Pets (involves naming a pet owner beneficiary and other estate planning since you cannot name pets as beneficiaries)
  • Cosigners (people who helped you get loans and are responsible for paying them off)
  • Charities

Life insurance helps in death and life

Typically, life insurance is purchased to cover the unfortunate circumstance of an untimely death. However, it can also help young policyholders in other ways, like wealth building. There are generally two options for life insurance:

Term life. This insurance covers you for a specific time length and a predetermined amount. The length depends on the policy but can be five to 30 years. The policy pays your beneficiaries if you pass away before the term expires. These policy benefits can be as low as $5,000 and can go into the millions. Term life policies usually have lower premiums, which is appealing for those just starting their life journey.

Permanent life. Typically, permanent life insurance combines a death benefit with a savings portion to allow the policyholder to build a cash value that the owner can borrow against. Permanent life insurance covers you for as long as you pay the premiums. A permanent life policy accumulates cash value over time and can be a tax-advantaged account. Premiums vary and may increase over time, depending on how you structure the policy. However, as cash values increase, you can use the excess cash accrued to maintain premium payments. 

Both life insurance options pay income tax-free death benefits to beneficiaries. Life insurance beneficiaries get paid separately from the probate court, which can be much-needed income during the months it takes to settle an estate.

The best time to purchase life insurance

Make sure you do your homework before you purchase life insurance.  Consider your budget and your specific needs.

Buying life insurance while in your 20s or 30s is generally less expensive than purchasing it when you’re older — good health often means a lower cost. Costs increase as you age or are diagnosed with illnesses or life-threatening diseases.

One of the best times to purchase or reassess life insurance is alongside positive life events like marriage, children, new business ventures, or while planning for any of these events. Preparing in advance means that when life changes occur, those who depend on you financially will be protected when you die.

Remember, life insurance is not just about a death benefit and protecting loved ones. It is an integral part of a strategic financial plan.

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Mike Hoskins

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