If you’re currently in your 20s, insurance might seem unnecessary or even confusing. What’s the point? Isn’t life insurance for people with kids or major assets and liabilities? Most twenty-year-olds don’t have assets, but instead, have thousands of dollars of student loan debt. You will be surprised to learn that life insurance can help you pay off those loans and even save for assets in the future. The trick is buying it while you’re still young.
Term Life VS. Permanent Life Insurance
There are two main types of life insurance: term and permanent. There are pros and cons for each.
Permanent life insurance – Some permanent policies grow in cash value by gaining interest and paying an annual dividend. One day when you’re ready to buy a house, have a wedding or pay off your loans, you can withdraw that cash value. Or, you could leave the cash in the policy to continue growing until you’re ready to retire. This works well when parents decide to buy a Whole Life policy for their children. Then, you would have a lump sum to lean on. In a world where millennials are more likely to start businesses than work for an employer, having extra retirement savings is valuable.
The other option is term life insurance. While this type of insurance has relatively low monthly fees, it also has an end date. Term policies can be set up anywhere between 10 and 40 year terms. The goal of term life insurance is to have coverage in place to meet your financial obligations if you are not here. For example, if you pass away and you still have a mortgage on your home and children to raise. Whoever you name as the beneficiary, often children or other family members receives the full amount as a tax-free death benefit.
Save Money on Insurance by Purchasing it Young
Regardless of which type of insurance you choose, it’s important to know that both policies get more expensive as you age. Right now, as a twenty-something, you are likely healthy and asset-free. From the insurance company’s point of view, you’re low-risk. That means your monthly fees will be low. Since permanent life insurance policies stay fixed, starting one now could save you money in the long run.
Your Health Can Change
The sad truth is that as we age, our health changes. We tend to have more issues and become more prone to different diseases. Once your health changes so do your risk in the eyes of the insurance company. If this is the case, two things can happen. The first is when applying you can get “rated” and the second is you can get outright declined. A rating means you are at a higher risk than the average person and for that reason are going to be charged more for the same coverage. That’s why obtaining insurance when you’re young and healthy is so important. In other words, you need to insure your insurability.
Term can be converted into Permanent later on
Life insurance is often more affordable when you’re young and your policies have more time to grow in value. If you’re concerned that permanent life insurance is out of your current budget, start with a term policy. The great thing about this policy is that it can easily be transferred into permanent policy later when you’re in better financial standing. At that point, you won’t even have to go through the medical underwriting process. However, the premium will update to your new age and the corresponding premium of the permanent product. Your best bet is to speak with a highly trained MILIFE broker that can shop the market for you and educate you on the options available to you as well as the benefits of those coverages. This way you put the right product in place for your unique situation. To speak with one of our highly qualified agents you can visit our site at MILIFE Insurance & Investment Inc. Or, call our office at 416-366-6767.