Let’s face it: life insurance isn’t hip. We’ve all seen retired athletes, aging actors, and every one of our grandpa’s favorite country singers tell us that for just pennies a day, we, too, can get life insurance. We know that life insurance helps protect your family and replace your income, and we know that it pays out if you die. But what’s in it for us – the single, minglin’ twenty-somethings of the world? Do I need life insurance if I’m young, single, and healthy? Let’s discuss young people and life insurance.
Despite the fact that life insurance is marketed as an “older” product, buying a policy while you’re young is actually a smart move. Young, healthy people have the opportunity to lock in the lowest possible rates for life insurance coverage, and a well-thought-out policy can help cover you (and any future additions to your family) well into your 50s, or even into retirement.
By applying young, you could end up paying about $20 a month to guarantee financial security for everything you care about. Even small, short-term policies can come in handy, and they could cost you less than ten dollars a month.
We’ll walk you through a few cases where it would be smart to pick up a life insurance policy early, as well as some things to consider when you’re looking for coverage as a young adult.
What do young people need life insurance for?
No matter how young you are, dying costs a lot of money. Between end-of-life medical care, funeral expenses and the cost of Kleenex, the people you love will likely end up having to pay over $10,000 when all is said and done.
Considering that many families would need to dip into credit card debt or borrow money to cover a $400 emergency expense, an unexpected $10,000 bill would add an extra layer of stress to an already difficult time for your parents and loved ones.
Keeping even a small $100,000 policy in your back pocket can help the people you love avoid the hardship of having to pay for your funeral, as well as giving them the ability to take time away from work to grieve without worrying about money.
One of the top reasons that a growing number of recent grads are buying life insurance is the skyrocketing cost of education. Even when scholarships are taken into account, graduates of the class of 2017 had an average of $28,500 each in outstanding student loans.
While federal loans are forgiven if a borrower dies before paying them off, private loans aren’t as easy to get rid of. If you die with private loans from your time in college, those costs will be transferred to any cosigners of your policy, and they’ll be responsible for paying up. This can stick your parents with even more debt than a funeral.
A term life insurance policy will guarantee that your loans are paid for, and your family won’t be stuck paying for your time in school.
» Learn More: Student Loans and Life Insurance
Despite the fact that most people see life insurance as an “older” product, buying a policy while you’re young is an incredibly smart move.
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Providing for Your Parents
While we may not be settling down or having children of our own yet, that doesn’t mean we don’t have families to take care of. As your parents age, you might be placed into the position of provider.
According to the AARP, millennials currently account for about 1 in 4 family caregivers, and that number will only increase as more of our parents begin to exit the workforce. Caring for your elders takes a lot of time and money, and losing a caregiver can put elderly relatives into a desperate situation.
The payout from a life insurance policy provides a financial buffer to help your loved ones relocate. This might mean moving a new caregiver to your parents, or moving your parents somewhere they can receive the care they need.
However, your parents may not need full-time care from you. Maybe you’ve just always dreamed of paying off their house, or sending them on that vacation they always talked about, or just finding some way to pay them back for all the love they’ve shown you.
Life insurance will guarantee that you’re able to give them that kind of gift even if you pass away before you save up enough yourself.
» Learn More: Term life insurance for caregivers
Maintaining Your Business
If you’re focused on your career and have built a small business from the ground up, a life insurance policy can be a great way to ensure that your clients and employees are taken care of if you were to pass away.
Some policies are built to provide severance pay to your employees who will need to re-enter the job market as your business dissolves. Other policies are designed to give your company time to pass the reins to someone who will be able to continue your work. No matter how big your business is, life insurance is a versatile tool that has many applications.
Key person life insurance is one of the most common policy types that business owners and other important people in a company use to protect their legacies and ensure that their clients are taken care of when someone crucial to the business’ success passes away unexpectedly.
» Learn More: Term life insurance for business owners
Leaving a Legacy
If you’re debt free, have a massive savings account, and keep enough money on hand to take care of your family for the foreseeable future, let me be the first to congratulate you, because you’ve won at life.
However, you might be interested in using coverage to leave a legacy, which is becoming pretty common among people who have a mission in life outside of building a family.
For example, it’s recently gotten more and more popular to use a policy to leave your mark on the world through a gift to charity after your final expenses are all dealt with. If there’s a cause you’ve spent your life supporting, making a charity or organization the beneficiary of a policy is a great way to show your passion.
Let’s say you love to volunteer at animal shelters. you might consider making your policy a donation to ASPCA or the Animal Humane Society. If you’re a longtime patron of a local community theater or art scene, you can make them your beneficiary so they can keep making the world a cooler place.
Any person or business can be named the beneficiary of your life insurance policy, as long as you explain that your policy is a charitable donation. If your favorite bar is always a little short on rent, leaving them a big check on your way out is a great way to secure a spot on their wall of fame.
Whatever you’re passionate about, a life insurance policy will let you make an enormous contribution to match a lifetime of service and patronage, and change lives in the process.
Things to Consider When Buying Life Insurance at a Young Age
Your Insurability Limit
Depending on how young you are and where you’re at in life, you may not be able to buy a large life insurance policy right now. This is because the underwriter needs to confirm that you’re actually able to pay for the coverage you apply for before they’ll be willing to give it to you.
The maximum amount of life insurance you can have active on yourself at any given time is known as your insurability limit, and is determined based on your age and annual income.
Early in life, you are able to have active life insurance equal to 25 times your annual income, so if you make $50,000 per year, you could get a maximum of $1.25 million in coverage. This multiplier decreases as you hit certain age thresholds, dropping to 20x your income at age 40, 15x at age 50, and 10x at age 60.
This limit also means that you may not be able to purchase a large policy if you’re not working full time. For example, if you’re a student working part-time, you won’t be able to ask for a $1M policy unless you have a strong financial argument to present to the underwriter, like a positive net worth or assets that you need to protect.
Smaller policies, like those within the $100,000 to $250,000 range, become much easier to secure if you can prove you have a way to pay for them. Once you’re in the workforce and making money consistently, you can quickly begin to purchase larger policies if and when you need them.
» Learn More: How much life insurance can I get?
Additionally, when you apply for a life insurance policy, you’ll need to choose a beneficiary, the person or people who will get the money if you pass away and your policy pays out. As part of the buying process, you’ll likely need to justify your picks by explaining how they’d be impacted by your death. This is known as insurable interest.
If you’re naming your parents as beneficiaries, you likely won’t run into any issues when purchasing a small policy. However, if you’re naming a sibling or friend as the beneficiary of your policy, you’ll likely need to provide a reason that they would be impacted financially due to your death.
Until you have a significant other that depends on your income directly, naming a direct family member as your beneficiary is often the best move, since they will likely be the ones you share debts with, and the ones who will end up paying for your end of life expenses, like your funeral.
While buying coverage might not be right for you right now, it’s definitely something to think about as you move further into adulthood.
Play around with our quote tool – no need to worry, we won’t ask for your contact info – to get an idea of possible prices. If you have any questions, get in touch with us to talk to an agent and find out if term life insurance is right for you; we promise we won’t try to give you the hard sell.
Photo credit to Ryan McGuire
About the writer
Eric started in Quotacy's sales department, but moved to marketing after helping hundreds of people through their life insurance buying journey. Aside from writing about buying life insurance, he also edits Quotacy's monthly newsletter, runs our YouTube channel and produces Real Life, our podcast. Eric lives in Minneapolis, where his coworkers are trying to convince him to take his humor into the spotlight. Connect with him on LinkedIn.