7 Steps to Buying Life Insurance in Your 20s
You can part your hair down the middle and slather on all the wrinkle cream you want — unfortunately, aging is inevitable. Though it may be a tough realization, you are getting older. And that means you should consider getting life insurance, even as a young adult.
Life insurance is designed to provide for your loved ones if (and when) you die. You pay into a policy over time, and after your death your beneficiaries receive a payout to help them make ends meet. It may seem morbid to think about, but it's a smart way to plan for the future, despite that future still seeming far away.
Experts often advise people to look into life insurance when they're young adults because that can be less complicated and less expensive than purchasing it later. The pandemic has made it even more of a priority: In a recent Money/Morning Consult survey, 19% of Gen Zers and 17% of millennials said they planned to spend more on life insurance this year than last. Members of both age groups identified the pandemic as a major reason for the shift.
If you're among them — or just simply curious — read on to find out how to buy life insurance if you're young.
1. Figure out whether you need life insurance
At its core, life insurance is a contract between a firm and a policyholder who pays regular premiums, says Faisa Stafford, the president and CEO of insurance nonprofit Life Happens. If/when the policyholder dies, the firm gives their beneficiaries money to make ends meet.
Stafford says policies “can cover virtually any type of expense,” including funeral costs, housing, food and so on. Two other big problems are typically replacement of income to the deceased’s family and elimination of debt in the event of death.
Deciding whether to get life insurance is a highly personal decision. It requires asking yourself some tough questions.
"An easy way to know if you need life insurance is to consider if someone would suffer financially if you were to pass away," Stafford says. "If the answer is yes, then you need life insurance.”
2. Time it right
Purchasing life insurance can feel counterintuitive. Nate Schelhaas, vice president and actuary of Individual Life at Principal, says that the best time to buy life insurance is when you're young and healthy — even though you (hopefully) won’t need it to kick in until you're older. The younger you are, the less risky you seem to an insurer, and the lower your premiums are likely to be.
The opposite is also true. “If you wait ’til you’re sick or dying, it’s too late,” Schelhaas adds. You'll either be denied a policy or its premiums will be unaffordable.
Schelhaas recommends checking in with yourself about it at least once a year. It’s not a bad idea to consider it whenever you tick off a new milestone, as well.
“Buying a house, getting married, having a kid — those are some of the big life events that cause people to step back and say, ‘Hey, my situation has changed. This might be a time to update my financial plan,’” Schelhaas says. “And one of those things could be purchasing life insurance.”
3. Choose a life insurance type
There are two major kinds of life insurance: term and permanent.
Term life insurance has a specific time period associated with it. You'll pay into it for, say, 10 years, and if you're still alive when the decade is up, your coverage ends. Permanent life insurance can stay in place forever as long as you meet certain criteria. Unlike term life insurance, a permanent policy has an investment value, known as a cash component, that you can tap during your life, to pay premiums or to borrow yourself. That added benefit usually results in higher premiums. (There are subcategories within these types of life insurance, too, including universal and whole.)
Consult a financial advisor or independent life insurance company on the best life insurance policy type for you.
"Working with a financial professional can help you figure out how much coverage you need for your own personal situation," Stafford says. "Don't be shy about calling on one since most are tele-advising, and their expertise can protect you from making financial missteps."
4. Determine the right benefit
The policy's payout, or the so-called "death benefit," typically ranges from the tens of thousands of dollars to the millions. To figure out what you may need, Schelhaas suggests doing some research by playing around with life insurance calculators online. Take Edward Jones', for example. It asks for what liabilities and assets you have, how much income you'd need to replace, whether you need to plan for education costs, and more to determine how much coverage you need.
Other calculators are less intense. Principal will generate a free life insurance quote with only your birth date, gender, location, height, weight, smoking habits and desired coverage amount.Life insurance doesn’t have to be a costly endeavor. For someone who’s 30 and healthy, the cost of a $250,000 term life insurance policy shakes out to about $160 a year. That’s $13 a month.
“Start small if you don’t know what to do,” Schelhaas says. “You don’t need to go out and get a million-dollar policy right away."
Once you figure out roughly what that cost is going to be, he adds, you can pivot into "How do I go about getting that insurance, and with whom should I get it?"
5. Find an insurer (and vet them)
If you have a job with benefits, you may have some life insurance coverage through work. In 2017, financial research firm LIMRA found that 108 million people fell into this category — more than the 102 million with individual policies.
Though it may help you with your decision, you might want to avoid relying entirely on your work life insurance. Stafford says it's typically group term life insurance provided for free or at a discount to employees. It's often not sufficient.
"Having individual life insurance in addition to your policy through work is important since group life insurance coverage usually ends when you leave your job," Stafford adds.
When evaluating various insurers, Schelhaas says to look at how long the company has been around, what its financial strength is, and whether you've seen negative headlines about its rates changing.
6. Apply for life insurance
Underwriters use risk to determine rates. So to save money on life insurance, experts suggest getting a medical exam to prove how healthy you are.
In non-pandemic times, this typically involved blood and urine tests. But the coronavirus crisis changed things. These days, you can simply fill out a questionnaire or give the insurer other personal details, like age, gender, job, driving record and prescriptions.
Stafford says you can get a life insurance policy without even leaving the house.
"The good news is that these companies are making purchasing life insurance easier than ever," Stafford says. "Many companies are using e-signatures, online applications, and sometimes not even requiring blood or urine tests, making life insurance more accessible to more people."
7. Review your policy
You're not done quite yet. After you lock in your life insurance, you need to remember to tweak it as time goes on.
"Policies often need to be adjusted after a significant life event like getting married, having a baby, getting that promotion at work, starting a business or preparing to retire," Stafford says.
Schedule a review with your life insurance agent as soon as possible after a life milestone to make sure you've got the right amount of coverage.
You might also need to update your life insurance beneficiary. When you're young and single, you may choose a parent or sibling to receive the payout in case of your death. But you'll probably want to change that to your spouse or child as you get older.
More from Money:
The Pandemic Is Scaring Young People Into Buying Life Insurance
A Guide to Whole Life Insurance