Life insurance is interesting because unlike other insurance policies, such as homeowner’s or auto insurance, everyone is going to eventually pass away and cash in on their policy. Although this is true, many young adults do not see the benefits of purchasing a policy at such a young age. To be fair, the need for the benefits of the policy may be lower in earlier stages of life. There may be however, still benefits to investigating the purchase of a life insurance policy while still at a young age.
Many jobs offer life insurance packages either through the company or through an insurance company partner. Individuals should take time to make a list of their needs in a policy and shop around before making a decision. Who knows, taking to the time to find a policy that fits their needs may turn out to be one of the best decisions of their life for both themselves and their loved ones.Life Insurance is a relatively simple idea that dates back as early as 2000 BC in China. It refers to an individual paying a premium, either a lump sum or periodic payment, in return for the insurer’s promise to pay a certain amount to family members or designated parties upon the individual’s death. There are many different options and types of life insurance but the basic idea of taking care of those affected financially by an individual’s death remains the core purpose of the insurance. Because of this many young and single individuals do not see the need for life insurance. The sense of invincibility of being young combined with the lack of tradition dependents, such as a spouse or children, makes the idea of paying for life insurance seem unnecessary. There are however, some things to consider for those individuals who are in their early 20’s before they write off the idea of purchasing a life insurance policy.
One of the best reasons revolves around cost. Put bluntly, the premiums for life insurance policies are calculated based on the individual’s likelihood of dying. Obviously a person in their early 20’s is much less likely to die than someone in their 50’s or 60’s. This means that the cost of a policy will be much cheaper for a healthy young adult than someone older. If someone is more likely to die the insurance company is more likely to have to pay the insurance coverage sooner rather than later. Additionally, if an individual waits to purchase life insurance until they realize they need it, such as after getting a terminal or chronic disease, getting a policy will be much more costly. Depending on the circumstances it may even be impossible to get a policy with many insurance companies when an individual has a serious pre-existing condition. Having a policy earlier in life allows the individual to renew it over time, meaning that although premiums will increase slowly as age increases he or she will not have to prove insurability to that company again. If anything were to change in their health they would already have the insurance package, and at a much lower cost.
Another, often overlooked, benefit of life insurance is the “living benefit”. Usually associated with death, some life insurance policies can actually provide benefits during life as part of an individual’s financial portfolio. The main benefit of a life time policy is there is a cash value that accumulates on the policy. Individuals can borrow against this cash value through policy loans, often at rates much more competitive than banks and credit unions. This can be very beneficial for expected or unexpected costs throughout life such as buying a home, paying for master’s degrees, paying for weddings, or any other major expense. Essentially by purchasing a life insurance policy at a young age individuals can open this line of credit to themselves for years to come. Individuals can even tap into the policy later in life for additional income during retirement.
Finally, whether young individuals like to admit it or not their death will affect someone financially. Whether it is parents, siblings, friends, or other relatives someone is going to have to pay funeral costs, make arrangements, pay off any debts an individual may have, and pay for the various other costs that come with an individual passing. While a young single individual certainly does not need a multi-hundred thousand dollar policy, a smaller policy can help loved ones not have to suffer financially when they are already grieving emotionally.
Disclaimer: I am not a licensed insurance agent. Every individual is different and you should talk to multiple company’s and insurance agents before making a life insurance policy decision.
Sources:
AXA Equitable
DailyFinance.com
Money.usnews.com
Newyorklife.com
Financially Stephen grew up in a family that preached saving and living below your means. That, in part, translated to his interest in Economics, especially how economics can affect individuals’ financial lives. Through his financial markets class in the fall of 2011, he furthered this interest by analyzing macroeconomic events. Stephen believes that finance, personal finance in particular, is a subject severely left out when it comes to public schooling in this country, and it is a problem that has manifested itself and contributed to many of the problems seen today. He also believes that education is the key to improvement and hopes that through his writings he will be able help people learn about finance, macroeconomics, and how to be financially savvy for the future.
In his free time Stephen enjoys playing and watching sports, wakeboarding, sailing, and country music. At UNC he has participated in Strive for College, UNC Dance Marathon, and UNC Relay for Life.
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