It’s often stated that you need life insurance if someone depends on you financially.
It doesn’t really matter who that “someone” is. It could be a spouse, a child, a parent, or a sibling.
If there’s at least one person who relies on you and your income to survive, you should strongly consider purchasing life insurance coverage.
That's why it's often stated that young people don’t really need to concern themselves with life insurance.
This is especially true when the young people in question are single, or are married but don’t have children or other dependents.
Sure, there are circumstances and situations where a young person could feel completely justified in forgoing life insurance. But there are just as many situations and circumstances that can serve as examples of when someone less than 35 should buy a life insurance policy.
Here are a few cases in point:
When Young People Should Buy Life Insurance
You have one or more “dependents”
The biggest reason to buy life insurance is to make sure anyone and everyone who depends on your income for survival will be provided for financially after you’re gone.
Jeff Root, owner of Rootfin Life Insurance Agency in Austin, Texas, says the words above basically serve as his “rule of thumb for everyone.” Whether you’re single or married, or whether you’re a parent to any children or none, “if you have someone [who is] financially dependent on you … you need life insurance.”
While most people think of “financially dependents” as spouses or children, they’re just as likely to be live-in boyfriends or girlfriends with whom you own a house. But they can also be siblings, or aging parents or grandparents.
Getting married, having children, and buying a home shouldn’t be the only triggers that push you to shop for or buy life insurance, says Nilufer Ahmed, Ph.D., senior research director at Windsor, Connecticut-based LIMRA Insurance Research.
If you’re responsible for anyone’s care, she adds, “you have to think about what will happen to that person or those people if something should happen to you?”
Your parents or grandparents don’t currently have to rely on your income for you to cover them with a life insurance policy. If you think either of those relatives may need long-term care in the near future, life insurance could provide you with some peace of mind.
You can’t stop yourself from dipping into your savings account
Ask people who sell life insurance to list the product’s “key features” for you, and most of them will say it's a “forced savings vehicle.”
In other words, unlike savings accounts, mutual funds, bonds, or stocks, life insurance policies require you to regularly invest in them. This “forces” you to put a certain amount of money aside that you can make use of once you’re older. (And of course it also offers up a death benefit that can assist loved ones if something should happen to you in the ensuing years.)
Granted, this particular “benefit” isn’t likely to have much appeal to disciplined savers. But if you’re the kind of person who can’t leave your savings account alone, you may want to give life insurance a try.
You want to pay as little as possible for life insurance
Another rule of thumb related to buying and owning life insurance is that the younger and healthier you are, the lower the payments tied to your policy are likely to be.
That’s because life insurance premiums are based on mortality. The average American’s life expectancy is currently hovering around 80. So insurers tend to view young people in good health as being less risky. That's why young people have much lower premiums.
Premiums only increase as you age. Harley Lockhart, an independent financial advisor recently shared with Financial Post one of his go-to pieces of advice to clients. He tells them that “the earlier you buy insurance premiums, the cheaper they’ll be and the longer you’ll be able to lock them in at that price.”
You want to protect your ability to purchase life insurance in the future
Life insurance cheaper to buy when you’re young and healthy. It’s also easier to buy when you’ve yet to put too many miles on the odometer, so to speak.
Buying life insurance is a much simpler task if you’re under a certain age and you haven’t had to deal with any of the medical issues. Health problems can make it a lot more difficult to purchase life insurance.
“Lots of things could happen to you” before you experience the life events that tend to push younger people to purchase life insurance, Ahmed says. “You could get sick or be forced to deal with some other sort of health issue that might keep you from being able to qualify for it in the future.”
Ahmed adds that she’s met many people in her work “who waited [to buy life insurance] and ended up wishing they’d bought it when they were younger and when it was cheaper. I definitely see people who regret not buying it earlier.”
So, even if no one is financially dependent on you, “consider your future health,” Root says to Gen Xers and Yers who are on the fence regarding life insurance. “When you want to purchase life insurance [in the future], you may not be able to because of various health conditions.”
You want to supplement the life insurance policy you obtained through your employer
There’s no question that if an employer offers to buy you a life insurance policy, you should take them up on it.
That said, there are a few drawbacks tied to this kind of coverage, with one of them being that “most group life insurance policies aren't portable,” Root explains. “If you leave your job, that benefit is gone.”
This is an especially relevant issue for younger people to consider, Ahmed adds, due to the fact that Millennials “are known for job-hopping.”
“What happens if your new employer doesn’t offer group life insurance? In those kinds of cases, you’re basically going to be forced to buy individual life insurance,” she says. This isn’t necessarily the worst thing in the world. This is because it will follow you no matter where you work or what you do.
Group life and other forms of workplace life policies may be enough for some young people. But others will want to bolster that coverage with an individual policy purchased outside of work.
Root says that when it comes to dual-income couples without children, “it depends on their liabilities” as to whether or not the coverage supplied by an employer will be sufficient. If the couple “[has] a mortgage and one person unexpectedly passes, will the [surviving] spouse be able to continue living in that house and support the same lifestyle on a single income?” If not, a policy acquired in the workplace won’t be enough.
You want to keep anyone from having to cover your funeral expenses or other debts after you’re gone
Some young people buy life insurance because they worry someone will have to pick up the tab for their numerous debts if they pass away.
Funeral costs tend to be a chief concern for these men and women—which makes sense, as these so-called “final expenses” can be shockingly costly. (LifeHappens.org recently estimated that the average funeral costs between $10,000 and $15,000.)
That isn’t the only form of debt Millennials should focus on while considering whether or not they need to invest in life insurance, though. Another, according to Ahmed, revolves around the student loans that many Gen Yers won’t finish paying off until they’re middle-aged.
“Who co-signed those loans? You have to think about that,” she says. That's because “a lot of younger people don’t always know who co-signed those loans and who would be responsible for repaying them if something happened to you.”
Actually, Ahmed adds, “you have to think about any loans you have that are outstanding. Did someone in your life co-sign them, too?” If so, you may want to turn to life insurance to protect those loved ones in the event of your death.
And then, of course, there’s the credit card debt that a lot of people accrue by a fairly young age. “Is the credit card you use one that you got on your own, or is it [tied to] your parents?” Ahmed asks. If it’s the latter, you can make another addition to your list of reasons to at least think of buying some type of life insurance.
Add in other potential debts like mortgage and car payments and it’s easy to see why some people turn to life insurance. They hope to decrease or eliminate this particular burden on their family members.
As for When You May Want to Pass on Buying Life Insurance…
It was suggested earlier that there are times when a young person can feel completely justified in ignoring life insurance.
A good example is if you simply don’t have anyone in your life who would suffer financially if you were to pass away.
In such cases, it probably would be difficult for anyone but the most aggressive of insurance agents to come up with valid reasons for you to buy a life policy.
Also, some married couples without children are likely to have a hard time convincing themselves that they would benefit from buying a life insurance policy.
This is especially true when both spouses contribute equally to their household income and even the untimely death of one wouldn’t result in a financial catastrophe for the other.
If you think the passing of one spouse would put a strain on the other, you may want to buy at least a modest amount of life insurance as a financial safety net.
All That Said, Young People Are Surprisingly Aware of Life Insurance (Although This Seemingly Doesn’t Prompt Many of Them to Purchase It)
Don’t take any of what’s said above to suggest that Millennials and other young people are completely unware of the existence of life insurance, by the way.
A LIMRA study from late 2014 found that 75 percent of those purchasing employer-sponsored or -supported life insurance policies are part of Generations X or Y.
Another Limra study revealed that “a majority” of the women and men who make up those same generations believe they need more life insurance coverage.
Unfortunately, even though many younger Americans know life insurance is something they should buy, many never purchase it.
According to the second study mentioned above, less than 20 percent of those who consider themselves to be Gen X or Y say they’re likely to buy life insurance at this point.
Another LIMRA study, found that those in the previously discussed generations overestimate the price of life insurance by between 119 and 213 percent, respectively. This is unfortunate for both those “youngsters” and their loved ones. That's because the same piece of research also found that cost is what keeps most Americans from buying life insurance.
All of this jives with what Root has personally experienced in his time as an insurance agent.
“I do think younger people tend to ignore life insurance all the way up to their mid-30s,” he shares.
Root says that he believes this type of insurance product only becomes top of mind for people after they’ve had to deal with one or more major life events. “And many younger people just haven't experienced how death can affect a family or [haven’t] thought about how it could affect them.”
Those who do purchase this kind of coverage earlier in life have one of two things in common. They “either have experienced ‘financial scars’ or have felt the responsibility of taking care of those financially dependent on them,” he adds.
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