As young adults, life insurance might not be at the top of your financial to-do list. You might think it’s something to worry about later in life when you have a family or more significant financial obligations.
However, starting a life insurance policy early can be one of the smartest financial decisions you make. With September being Life Insurance Awareness Month, it’s the perfect time to explore why investing in life insurance at a young age is a strategy worth considering.
In a nutshell, buying life insurance now instead of later means:
- Lower premiums
- Long-term security
- Building cash value
- Peace of mind
Read on to learn more about these benefits and the types of life insurance policies available to you.
Earlier Life Insurance Purchases Means Lower Premiums
One of the most significant advantages of purchasing life insurance as a young adult is lower premiums.
Insurance companies calculate your premium based on risk factors like age and health. As a young, healthy individual, you’re less of a risk, which means you can lock in lower rates that remain constant over the policy’s term. This could save you a substantial amount of money over the years.
A Life Insurance Plan Now Means Long-Term Security for You and Your Loved Ones Down the Road
Starting a life insurance policy early provides long-term security for you and your loved ones.
While you might not have a family now, life can change quickly. Whether it’s marriage, children, or buying a home, having life insurance ensures that your loved ones are financially protected in case something unexpected happens. By starting young, you establish a foundation of financial security that can grow with you as your life evolves.
A Whole Life Insurance Policy Builds Cash Value
There are several different types of life insurance policies you can invest in, which we’ll cover in a minute, but if you choose a whole life insurance policy, you also have the opportunity to build cash value over time.
This feature allows you to accumulate a savings component that can be borrowed against or even cashed out in the future. Starting early gives your policy more time to grow, potentially providing you with a valuable financial resource down the line.
Life Insurance Now Gives You Financial Peace of Mind
Life insurance might not be a topic you want to think about, but it’s essential for financial peace of mind. Knowing that you have a plan in place to protect your loved ones can provide a sense of security.
It’s one less thing to worry about as you navigate the challenges and opportunities of young adulthood.
Which Type of Life Insurance Is Best for Young People?
Young adults have several options of life insurance to consider. Each type of policy offers different features, benefits, and costs.
The most common life insurance options available to younger people are:
- Term Life Insurance: Provides coverage for a specific period, typically 10, 20, or 30 years. If the policyholder passes away during the term, the beneficiaries receive a death benefit. These plans have a lower premium than permanent life insurance, which makes them an attractive option for young adults. They’re also great for covering financial responsibilities that have a definite end, like a mortgage or children’s education. On the other hand, these policies do not have a cash value component, and coverage ends when the term expires unless it is renewed.
- Whole Life Insurance: These policies cover the policyholder’s entire life, with a savings component that builds cash value. This means there’s a guaranteed death benefit, regardless when you pass away, as long as your premiums are paid. Unlike term life insurance, whole life plans accumulate cash value over time, which can be borrowed against or withdrawn. These policies tend to have higher premiums and aren’t as flexible if your financial needs change.
- Universal Life Insurance: These policies are a more flexible, permanent life insurance that combines a death benefit with a savings component, allowing for adjustable premiums and coverage. Like the whole life policy above, universal life insurance accumulates cash value that can be invested and potentially grow over time. It can also be more affordable than whole life if the investment performance is favorable. The downside is that the cash value growth is dependent on how your investment performs, so it requires active management.
- Group Life Insurance: Some businesses include group life insurance as part of an employee benefits package, providing you with basic coverage at little to no cost. This is an expensive option with the added benefit of automatic enrollment, which means you probably won’t need a medical exam. However, group life insurance has a limited coverage amount and probably won’t travel with you if you change jobs.
There are several other options available on the market as well, such as variable life insurance or simplified issue and guaranteed issue life insurance, but the four we’ve listed above are the policies that tend to be where most young adults start.
When selecting a life insurance policy, young adults should consider factors such as their financial responsibilities, budget, and long-term goals.
Term life insurance is often a good starting point for those seeking affordable coverage, while whole or universal life insurance can provide additional benefits for those with more complex financial needs. A financial advisor or your independent Wichert insurance agent can help you determine the best policy for your needs. Starting early can help you secure better rates and ensure financial protection for your future. Connect with a Wichert agent today.