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Published: Nov 16, 2022 9 min read
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Do you think you’re too young to get life insurance? The quick answer is: you’re not. On the contrary, getting life insurance as a young adult can mean affordable annual premiums and the opportunity to build cash value.

It’s also a good idea to buy life insurance in your 20s if you have dependents or someone relies on you financially, you have large debts or you want to lock in a good rate.

Keep reading to find out more about when it makes sense to buy life insurance in your 20s.

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Life Insurance in Your 20s

You probably think a life insurance policy is only worth it if you have loved ones who financially depend on you. And you’re not wrong. Nevertheless, buying life insurance as a young adult is a wise financial decision that can result in cheaper premium rates. And for those with a whole life policy, it could also mean affordable premiums with high earnings from the cash value component.

According to the Life Insurance Market and Research Association (LIMRA), most Millenials (between 24 and 41 years of age) find life insurance policies unaffordable. Others believe it unlikely they’ll be approved after the underwriting process, which usually includes a medical exam. However, according to LIMRA, Millenials are in their prime life stage for life insurance coverage.

Furthermore, the pandemic has changed how Millennials think about life insurance. A recent LIMRA study reported that in 2022, 44% of Millennials said they were more likely to purchase coverage within the next year because of COVID-19. Still, only 45% of millennials have a life insurance policy.

Should I Buy Life Insurance in my 20s?

You should buy life insurance if you’re a healthy young adult who wants to lock in a lower insurance premium with a generous death benefit. Companies often offer cheaper life insurance premiums to young individuals who are in good health and have no preexisting conditions.

If you’re a young adult and still on the fence about getting a policy, check out some of the reasons to buy life insurance in your 20s:

Pros
  • Easier coverage approval
  • Lower insurance costs
  • Protects your family from having to cover your unsecured or co-signed debt
Cons
  • Extra monthly expense
  • You might get higher earnings from other investments
  • A whole life policy will lapse if you fail to pay monthly premiums or pay back the cash value

Buying a term policy in your 20s doesn’t mean you'll be stuck for the rest of your life with the same death benefit amount you can afford now. You can purchase a term life insurance policy with a 20-year term and increase your death benefit after your policy lapses.

Some companies offer convertible term to whole life policies. Suppose you’re interested in a term life policy but fear missing out on the cash value component of a permanent life insurance policy. In that case, some companies like New York Life offer convertible term to whole life policies without further medical exams.

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When to get life insurance

The sooner you get life insurance, the better.

With a life insurance death benefit, you can protect your family's financial future in the event of your untimely death. Also, a life insurance policy can help pay off your debt with a co-signer (for a student loan, for example). Likewise, the tax-free death benefit can cover any unsecured debt such as credit cards, personal loans or student loans you leave behind.

What your beneficiaries do with the death benefit is up to them. In most cases, life insurance companies offer three ways to disburse the death benefit:

  • As a one-time lump sum payout: the full death benefit will be deposited in one payment
  • As installment payments: the death benefit is kept in an account that earns interest and is paid to the beneficiaries in a series of monthly installments
  • An annuity: the death benefit is invested by the insurance company for the long term on a tax-deferred basis, and it’s paid in monthly installments that are supposed to last for the rest of the beneficiary’s life

Since term and whole life insurance offer different benefits, it’s important to understand each coverage before purchasing a policy. Take a look at our term vs. whole life insurance analysis to select the right policy for your needs.

Types of life insurance: term and whole life policies

Both term and whole life policies provide a death benefit to the policyholder’s beneficiaries. However, these policies have their unique benefits and drawbacks.

Term life insurance

  • Term life insurance only lasts for an established period, and the death benefit is paid to the beneficiaries after the policyholder’s death
  • A term life policy doesn’t have a cash value component
  • Insurance companies usually offer terms ranging from 10- to 30-year, with some offering 1- to 5- year renewable policies
  • When the term ends, the policy lapses and the policyholder is no longer covered
  • Term life policies tend to have lower annual premiums than whole life policies, being a good option if you’re looking to buy life insurance for less

Whole life insurance

  • Whole life policies are permanent, and the policy lapses when the policyholder doesn’t pay the premiums or has obtained a loan that surpasses the cash value
  • You can use the cash value to cover premium payments or borrow it (like a loan) for emergencies
  • Any outstanding loans taken from the cash value will decrease the policy’s death benefit
  • The loans have to be paid back, usually with interest
  • Permanent policyholders might receive annual dividends*

*A cash value component is an investment feature of a permanent policy that can earn interest and grow. Remember that the cash value component is a living benefit, and the life insurance company will keep it when you die.

*Dividends are extra funds life insurance companies return to their policyholders at the end of each year.

Both whole and term policies offer no-exam life insurance, benefiting those who don’t want to go through the hassle of medical exams. Companies like Ladder offer term policies with laddering, allowing customers to increase or decrease their coverage at any moment based on their financial needs.

Benefits of getting life insurance in your 20s

The main benefit of buying life insurance in your 20s is having access to cheaper premiums and a higher chance at coverage approval.

Additional benefits of buying life insurance in your 20s include:

  • Higher cash value earnings that can be used to pay debts, unexpected expenses, or as a down payment for a mortgage loan
  • Having your final expenses covered
  • It serves as an additional tax-deferred option in addition to a maxed-out IRA or retirement plan

Besides using cash value earnings to cover emergency expenses, policyholders also use life insurance to fund retirement. Some even use life insurance as collateral in small business lending.

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Summary of Money’s Should I Get Life Insurance in my 20’s Review

Purchasing life insurance in your 20s is a good option if:

  • You want to leave enough money for your family to be financially secure
  • You want to leave your final expenses covered
  • You want to lock in lower premiums and save money in the long run

Before buying a policy, it’s important to familiarize yourself with the types of life insurance: term and permanent. It’s also savvy to obtain a life insurance quote to know if a policy can be part of your financial plans.

For those 20-something-olds interested in life insurance, it’s important first to consider the amount of coverage to purchase and the time period you wish to be insured. Waiting to buy life insurance at a later point in your life will mean higher premiums and less chance of coverage approval.