When asked, financial experts will generally recommend that you make a life insurance purchase when you’re gearing up to start a family. However, if it’s your intention to start a family in your 30’s there are definitely some significant play-it-smart financial advantages to purchasing earlier, in your 20’s.
After all, what are your 20’s for if not to structurally set up a foundation for your future success and limit, as much as possible, any future financial strain that will only make life that much harder down the road, not to mention far less fun!
The important thing to remember is that it’s always worthwhile taking the time to compare life insurance policies. There are a lot of subtle differences between your choices & you can end up saving a surprisable amount of money in the long run.
WHOLE TERM & TERM POLICIES
To start, it’s substantially imperative that you know the difference between the two main types of life insurance policies. Here is a short breakdown of each:
- Whole Term: This policy is a life-long policy that provides ways for you to accumulate tax-free cash through investment incentives. Despite this, it is not a policy generally recommended by financial experts unless you have circumstances that dictate a need for a life-long policy, such as an illness or a handicapped child. This lack of recommendation comes from all of the commissions, fees, and highly expensive forfeiture costs that are associated with this type of policy.
- Term: This policy is the preferred option and would be the policy you would buy in your 20’s, so to be able to change it up later in life, as it offers coverage for a set amount of years. While there are no investment incentives attached, you are afford a fixed-rate that with no extra fees attached—you’ll always pay the same amount, for the full duration.
Tony Streur, a life insurance consultant and author, explains the benefit of a term policy over whole here saying, “Term coverage is the appropriate coverage for most individuals, as their needs are for a certain term of years, while their other assets accumulate, such as retirement savings.”
Q&A: ANSWERS ABOUT BENEFITS & COVERAGE OPTIONS
Q: I’m in my 20’s and don’t have a lot of money; is it reasonable for me to spend money on life insurance?
A: Yes, it’s very reasonable! Your youth provides you excellent rate options that you will not see again and you can set up an affordable policy now that will carry through for a few decades.
Q: Just how affordable is affordable?
A: You can pick up a $500,000 30-year term policy that will cost you $350 to $400 per year and that premium is fixed for all 30 years. If you start a family in your 30’s, you won’t have to worry about paying higher rates right when you have all kinds of other expenses starting up.
Q: Do I really need $500,000-worth of life insurance at this point?
A: Not necessarily. That example was a high-end example, which just goes to show how affordable rates are for you right now. At this point, you only need 4 to 5 multiples of your income, but if it’s your intention to plan ahead, you might want to consider including coverage for what your assets will be within the next 5 to 10 years (i.e. when you have a family). You can click here to learn more.