Should You Get Life Insurance in Your 20s?
When you're young and just starting out in your career and adult life, getting life insurance may not be at the top of your mind. However, your 20s can actually be an opportune time to secure a life insurance policy. While no one likes to dwell on their own mortality, having life insurance in place can provide peace of mind and protect your loved ones financially should the unthinkable happen.
Here are some key reasons why getting life insurance in your 20s is something to seriously consider:
Lock in Low Rates
One of the biggest advantages of buying life insurance at a young age is being able to lock in a low premium rate that is based on your current age and health status. Life insurance premiums are risk-based - the younger and healthier you are, the less expensive your policy will be. As you get older and potentially develop health issues, premiums become more costly. By getting a policy in your 20s, you can lock in affordable rates for 10, 20, or 30 years depending on the term length.
Coverage for Dependents
While being single and childless in your 20s is common, many people do have spouses, children, or other dependents they need to protect at this age. A life insurance policy can ensure that your family is provided for financially if something were to happen to you. The death benefit from your policy could be used to cover mortgages, outstanding debts, childcare expenses, future educational costs, and more.
Supplement Your Retirement
Though retirement may seem a lifetime away in your 20s, a permanent life insurance policy that builds cash value over time can actually supplement your retirement savings strategy. The cash value growth is tax-deferred, giving you another pool of funds to draw from in retirement beyond just 401(k)s or IRAs.
Cover Your Debts
Between student loans, credit card balances, car loans, and other personal debts, many people in their 20s are carrying financial obligations. If you were to pass away, your cosigners or estate would be on the hook for repaying those debts, which could be a major burden. Having an affordable term life insurance policy could leave behind a death benefit to settle your outstanding debts.
Secure Insurability
Unfortunately, you never know when your health status may change or if you could develop a condition that makes you uninsurable in the future. By locking in a life insurance policy while you are young and healthy, you secure insurability no matter what health situation may arise down the road. As long as you continue paying your premiums, the policy cannot be canceled due to changes in your health.
Types of Life Insurance for Your 20s
The two main types of life insurance to consider in your 20s are term life and permanent/whole life:
Term Life Insurance
- Provides level premium payments for a specific period of time, usually 10-30 years. It offers a high death benefit amount for a relatively low cost, making it an affordable option for young families on a budget. The downside is that term life does not build cash value to borrow against or provide lifetime coverage like permanent insurance.
Permanent/Whole Life Insurance
- Offers lifelong protection and a cash value component that grows tax-deferred over time, essentially acting as an income-tax-free investment account. The premiums are much higher than term life insurance, especially for young people. However, the cash value growth and lifetime coverage make whole life insurance worthwhile for some.
Many financial experts recommend purchasing affordable term life insurance in your 20s to provide maximum coverage, and then converting to a permanent policy later in life when your budget allows for higher premiums.
How Much Coverage Do You Need?
When purchasing life insurance in your 20s, a common guideline is to get a policy with a death benefit of 10-15 times your annual income. For a 25-year-old making $40,000 per year, that could equate to a $400,000 - $600,000 policy. This death benefit amount should be enough to replace your income, pay off debts, cover childcare costs, fund a mortgage, and leave something left over.
If you have dependents who rely on your income, a more comprehensive needs analysis should be done that accounts for all future obligations and expenses that would need to be covered. An insurance agent or financial advisor can assist with calculating an appropriate coverage level for your situation.
In Conclusion
Life insurance is certainly not the most exciting financial product to purchase in your 20s, but it could be one of the smartest decisions you make for your family's long-term security. With affordable premiums locked in, options for term or permanent coverage, and the ability to get insured before any health issues arise, your 20s may indeed be the ideal time to put a life insurance policy in place.
The information is provided for educational and informational purposes only. Such information or materials do not constitute and are not intended to provide legal, accounting, or tax advice and should not be relied on in that respect. We suggest that You consult an attorney, accountant, and/or financial advisor to answer any financial or legal questions.
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