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For many young adults, life insurance is not something that’s top of mind. With the excitement of building a career and possibly starting a family, mortality is not something most people at the beginning of their adult lives want to think about. But nothing is certain in life, and there are compelling reasons why young adults should think about life insurance.
Understanding the benefits of life insurance early on can ensure peace of mind and financial stability for both you and your loved ones.
Reason No. 1: Financial Security for Dependents
Even if you don’t have dependents now, life insurance is a crucial consideration if you’re planning to have a family in the future.
In the tragic event of an untimely death, life insurance ensures that your dependents, such as a spouse or children, are not left in a precarious financial situation. A life insurance payout can cover everyday expenses, educational costs, and provide a cushion during a difficult time. This safety net allows dependents to maintain their standard of living and secure their financial future.
Reason No. 2: Pay off Debts
Many young adults are saddled with financial obligations, particularly burdensome student loans. Debt from credit cards and loans can accumulate quickly. In the event of a sudden death, those debts don’t disappear. Instead, they can become an albatross around the necks of family members or co-signers. Life insurance can alleviate this burden by providing the funds to pay off these debts, ensuring that loved ones are not suffering from financial insecurity in addition to their grief.
Reason No. 3: Affordable Premiums
One very significant advantage of purchasing life insurance at a young age is that premiums are much lower.
Life insurance premiums are based on actuarial estimates of the probability of death, which is lower for younger, healthier individuals. Buying a policy early will lock in these lower rates for the duration of the term, making it a cost-effective decision. As one ages, premiums tend to increase, especially if health issues arise. By purchasing life insurance young, individuals can take advantage of lower costs and more favorable terms.
Reason No. 4: Build Cash Value
Certain types of life insurance, such as whole life or universal life insurance, not only provide a death benefit, but also build cash value over time. In the future, the policyholder can borrow against this cash value or even withdraw cash in certain circumstances.
For young adults, this means that life insurance serves as both a protective measure and a financial asset. As the policy matures, it can serve as a source of emergency funds or supplement retirement savings. The earlier you buy a policy, the more time you’ll have for the cash value to grow.
Reason No. 5: Peace of Mind
Life is unpredictable. Life insurance offers peace of mind since you can be assured that your loved ones will be taken care of financially in the worst-case scenario.
With this peace of mind, young adults can focus on their personal and professional lives without the worry of what might happen if they were no longer around. With the financial safety net of life insurance, it’s easier to take risks like starting a business with greater confidence.
Reason No. 6: Supplement Employer-Provided Coverage
Many young adults rely on life insurance coverage provided by their employer. While this can be a nice perk, it’s rarely enough to ensure future financial security.
Employer-provided policies typically offer coverage that is only one to two times the employee’s annual salary. Moreover, the coverage is usually tied to employment; losing or changing jobs will terminate your coverage. An individual life insurance policy ensures continuous and sufficient coverage regardless of your employment status.
Reason No. 7: Health Can Change Unexpectedly
Young adults often feel invincible, but health can take a turn unexpectedly. Accidents or sudden illnesses can occur, making it more challenging or expensive to obtain life insurance later. Securing a policy when you are young and healthy guarantees coverage that can’t be revoked based on changes in health. This proactive approach ensures that you’re always protected, regardless of what the future holds.
Reason No. 8: Support Long-Term Financial Goals
Life insurance can be a critical component in long-term financial planning. It complements other financial tools, such as savings accounts and retirement funds, by providing an additional layer of security.
The death benefit can be used to fund significant life events, such as purchasing a home, paying for higher education, or ensuring a comfortable retirement for a surviving spouse. Integrating life insurance into a broader financial strategy helps young adults pursue their long-term financial goals with greater confidence and security.
The Bottom Line
Young adults often overlook life insurance, but it’s a vital component in comprehensive financial planning. From providing financial security for dependents and paying off debts to offering affordable premiums and building cash value, the benefits of securing life insurance at a young age are significant.
By prioritizing life insurance early, young adults can protect their financial future, provide for their loved ones, and enjoy peace of mind knowing they’re prepared for whatever life may bring.
Sources
National Association of Insurance Commissioners (NAIC). Life Insurance Buyer’s Guide. Accessed July 8, 2024.
https://content.naic.org/consumer/life-insurance.htm
New York State Department of Financial Services. Consumer Guide to Life Insurance. Accessed July 8, 2024.
https://www.dfs.ny.gov/consumers/life_insurance
Office of the Insurance Commissioner, Washington State. A Consumer’s Guide to Life Insurance. Accessed July 8, 2024
https://www.insurance.wa.gov/sites/default/files/documents/life-insurance-guide.pdf
Liberty Mutual Insurance Company. What is Life Insurance and How Does It Work. Accessed July 8, 2024.
https://www.libertymutual.com/insurance-resources/life/how-does-life-insurance-work
Aflac, Average Term Life Insurance Rates. Accessed July 8, 2024
https://www.aflac.com/resources/life-insurance/term-life-insurance-rates-by-age.aspx
