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Life Insurance for Young Adults Thumbnail

Life Insurance for Young Adults

Young adults don’t typically think about life insurance. Believe me, I understand, I had to convince myself at the age of 23 why it made sense to buy life insurance as a single "bachelor" with no kids. After all, in your 20s and 30s, you probably feel like your entire life is endlessly stretched out ahead of you. You have all the time in the world to make big decisions about your life. Why think about something you might not need for hopefully many many years? This is a huge mistake. Life insurance is more valuable and necessary than you might want to think about. Let’s explore some key details about life insurance, why you should have this coverage, and looking into getting this important coverage in your 20s and 30s.

Strange Rumor: Rumor has it that back in the day, insurance salespeople used carry obituaries of younger people (20-40 years old) to prove the point that we are not invincible. Now, I think that is aggressive and borderline unethical, but the main point is that life happens and we are not invincible. 

Also, if you are in decent health, term is very inexpensive. Here is an example using a "standard" health rating (truthfully, most of our Gen X & Gen Y clients get a much better rating than standard but let's use that):

  • Male, 30 years old, non-smoker, $500,000 for a 20-year term: $45/month
  • Female, 30 years old, non-smoker, $500,000 for a 20-year term: $39/month

Be honest, you thought it was going to cost more than that didn't you? 

What Is Life Insurance?

Life insurance is meant to help take care of your dependents after you have passed away. It can be used for a variety of expenses such as funeral costs, to pay down debt (student loans!) or mortgage amounts, as a livable income for a spouse as they adjust to life without you, and can even go towards children’s education. The amount of coverage you'll want to buy will vary depending on how much your dependents will need your income if you pass on. This is definitely a conversation married couples in their 20s and 30s should have as soon as possible to make these important decisions.

Single People Can Have Smaller Policies

If you are single, you may still want to consider carrying a small policy that will cover your funeral expenses if you pass away. This makes sure that your relatives and loved ones don’t have to foot the bill on their own if something happens to you.

This is actually a very considerate reason for anyone to have life insurance. Some companies automatically give you a small policy with your benefits and insurance package at your job. Check with your HR department if you are unsure of what your company offers for you insurance-wise. You may not need to take out an additional life insurance policy if they already have something set up for you.

Pro Tip: Even if your employer does not offer free coverage, you can probably lock in a very low cost group policy. Contact HR and ask them for the details. 

When Marriage And Children Come Into Your World

When you are in your 20s and 30s, married, and have children, it’s time to consider carrying life insurance. What you need may change as your income grows, you buy a home or other assets, and if your family multiplies with more children being born through the years.

Pro Tip: Here are the cold hard facts about me (not saying this is my recommendation for you, but this is my real life example). When I was a single guy, I had just over $100,000 in life insurance. A month or so before my son was born I added an additional $1,500,000. Why so much? Well, I would argue that it is not that much, but remember my note from above, term life insurance is not very costly. Our goal is to replace my income for a few years, payoff off the mortgage for Mari, and pay for Ryker's future college costs, and I think our number looks pretty good as of today. 

Types Of Life Insurance

There are two basic types of life insurance policies you can obtain.1 One is called “term” and the other is called “whole” or permanent life insurance. I am not saying one is right or wrong, but if you are in your 20s or 30s and someone is trying to sell you permanent life insurance, make sure you understand all the pros and cons. Term is usually the best option for young professionals, in my opinion. 

Term life insurance is paid out if the death of a person occurs within the time frame of the policy, usually within one to thirty years. A level term means that the death benefit stays the same throughout the policy’s duration. Most of the life insurance purchased is considered “level term.”

A whole life insurance policy is paid out whenever you die. It doesn’t have a specific time limit. Sometimes the premium goes up each year or starts out higher and may go down eventually as the years go on. Under this type of life insurance, there are quite a few variations in coverage, so make sure you get the one that’s right for you. Understanding all the ins and outs of your coverage may seem complicated, but it’s worth looking into so you completely comprehend what you are getting for your money.

A Financial Advisor May Be Able To Help

A financial advisor can help you determine how much life insurance you'll need to cover your family's needs in the event that something happens to you or your spouse. It’s not just coverage for you. Many two-income families need to have life insurance for both spouses to make sure that the standard of living will continue for the remaining spouse and children, if one partner passes away.

Don't feel like talking to a financial advisor (I hear ya! They are so annoying! 😉), check out NerdWallet's online calculator to help estimate your life insurance need: How Much Life Insurance Do I Need?

While life insurance may not be a pleasant subject to talk about, being prepared for anything that might happen, even in your 20s and 30s, is important for the well being of your family.

We were quoted by CNBC on a similar story: Why a millennial should have life insurance.

We also have written about this topic in some of our other blog posts: WealthKeel Blog, Insurance.

1 https://www.iii.org/article/what-are-principal-types-life-insurance