Summary: Life insurance in your 20s can be a powerful financial tool that not only helps pay for your funeral in the event of your untimely demise but also many other expenses. Your family may not be prepared if you pass away at a young age and premiums may be challenging for some, however, there are many benefits and lower costs when you purchase a policy earlier in life. Estimated Read Time: 4 mins
Thinking about your life insurance death benefit, the amount of money your beneficiaries would get when you die isn’t always on the minds of twenty-year-olds.
Yet, being prepared is important for anyone, regardless of age, and the benefits of life insurance for young adults can make this financial safety net an affordable option to protect loved ones.
When you’re younger and healthier, premiums for life insurance policies are cheaper and they can help your loved ones pay for if the unthinkable happens.
Not only can you help cover the loss of your income and pay off debts loved ones might be left to deal with, but funerals alone can reach over $8,000 on average with some reaching more than $10,000, depending on all of the extras associated with the ceremony and burial.
Do you need life insurance in your 20s? It’s likely. Below, we’re looking at the reasons why life insurance can benefit young adults, the advantages of purchasing a policy at a younger age, and how to find the right coverage for your needs.
Why Should I Get Life Insurance in My 20s?
Getting life insurance in your 20s is crucial for securing your family’s future and easing financial burdens.
By starting early, you lock in lower premiums and ensure coverage for outstanding debts and funeral expenses.
Life insurance also acts as income replacement for dependents, maintaining their quality of life in case of your passing.
Furthermore, early policy initiation allows for potential cash value growth over time, offering flexibility for future financial needs.
Overall, investing in life insurance in your 20s is a proactive step towards long-term financial security for you and your loved ones.
The Pros and Cons of Buying Life Insurance in Your 20s
Life insurance is essential when you have significant debts or loved ones relying on your income, even at 20.
It provides financial protection in case of accidents and ensures debts won’t burden others.
Additionally, policies often offer benefits for serious medical conditions and can serve as tax-advantaged savings accounts.
To help you understand whether or not buying life insurance in your 20s is right for you, here are the pros and cons:
Pros of Life Insurance in Your 20s
There are many benefits of getting life insurance at a young age, including lower premiums, a longer period of coverage, more flexible coverage, and an increased cash value:
- Lower Premiums: Younger individuals often pay less for insurance due to lower risks, resulting in cheaper premiums compared to older individuals.
- Longer Coverage: Life insurance for a young person provides coverage in case of premature death, offering financial security for loved ones and the potential to leave a legacy or assist with retirement planning.
- Flexible Coverage: Certain policies, like permanent life insurance, may allow you to increase coverage periodically without a medical exam, providing flexibility for future needs or changes in health status.
- An Increased Cash Value: Starting in your 20s allows for more time for cash value to grow through compounding, potentially leading to significant tax-free income later in life.
Cons of Life Insurance in Your 20s
While there are many benefits of life insurance at a young age, you should consider all angles before signing up. Purchasing a life insurance policy can be expensive for young adults and result in a bill they might not need for a longer period of time:
- Difficulty Paying Premiums: Young adults starting careers or families may struggle to afford the higher premiums of permanent coverage. Inconsistent payments can cause permanent life insurance policies to lapse, leaving the policyholder without coverage.
- Longer Premium Payment Period: Policies often require premiums to be paid throughout your entire life or for an extended period, resulting in more years of payments. While buying young means lower premiums, it also means more years of payments.
- Potential Lack of Immediate Need: Purchasing insurance at a young age may provide little benefit if you remain single and do not prioritize leaving a financial legacy, resulting in spending on unused coverage.
- The Opportunity Cost of Paying Premiums: Paying costly insurance premiums entails an opportunity cost, as funds could be used elsewhere, such as investing in the stock market for potentially higher returns. Some may opt for cheaper term coverage and invest the difference.
Best Whole Life Insurance for 20s
In your 20s, opt for term life insurance if you have a tight budget and need temporary coverage. It’s affordable but expires at the end of the term.
Whole life insurance is pricier but lasts your entire life and builds cash value. Choose based on your insurance goals.
Life insurance, whether term or permanent, is cheaper in your 20s. Even if you don’t need it now, getting a policy prepares you for future needs.
Speak with an insurance broker to explore options and determine the right choice for your situation.
Sources:
1. How Much Does the Average Funeral Cost?, TIME. Accessed May 2024. https://time.com/personal-finance/article/how-much-does-the-average-funeral-cost/