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If you're a young adult with no dependents, life insurance might not seem like much of a priority — especially if you have other financial concerns, such as paying off student loans or saving for a down payment on your first home.
But there are several reasons to buy life insurance when you're young. Here are some of the reasons you might consider, plus a brief explanation of the three most common types of life insurance.
Reasons to Buy Life Insurance as a Young Adult
While it might not seem like someone your age would need life insurance, some of the reasons a young adult might want coverage include:
To Help Cover Final Expenses
In 2019, a funeral with a viewing and burial cost $7,640 on average, according to National Funeral Directors Association. In addition to funeral costs, you might also have other bills, such as health care costs, if you died. With life insurance, you could cover these expenses yourself and help prevent leaving a financial burden behind for your loved ones.
To Pay Off Debt
Life insurance might also be valuable if your parents or someone else cosigned your student loans and other debts. If you passed away, then your cosigner would still be responsible for paying everything off. Life insurance could help with these expenses.
To Prepare for Future Needs
Do you plan on buying a house, getting married or having children? A life insurance policy can help protect your loved ones in the event that you should die, and buying a policy while you're still young could potentially help you lock in a lower rate.
Potential Advantages of Buying Life Insurance While Young
Buying life insurance while young may offer several advantages versus waiting. When you apply for a policy, you go through a process called underwriting where the insurer reviews your health status and considers your risk of passing away. Based on your risk, they decide whether you qualify. You are not guaranteed to be able to buy life insurance, but when you're younger, you're typically in better health than when you're older, so you have a better chance of qualifying.
Insurers also use this information to determine the premium you pay. The younger and healthier you are, the more likely you are to get a lower rate. On the other hand, if you wait until you're older to buy, the cost of insurance will likely be more expensive. There's also the chance that you could develop a serious health condition by then, which can make it more difficult to qualify.
Types of Life Insurance for Young Adults
There are three common types of life insurance: term life, whole life and universal life. Here's a brief overview of each.
Term Life Insurance
Term life insurance is a temporary policy. It lasts a set amount of time, and if you outlive the term, your coverage ends. In exchange for being temporary, term life insurance is typically more affordable than other types, especially as a young adult. This kind of life insurance might be a good fit for those looking to purchase a policy on a smaller budget.
Whole Life Insurance
Whole life insurance is a type of permanent coverage and does not have an expiration date. So, as long as you pay the premiums, it can last your entire life. The premium typically starts out more expensive than term but does not increase over time. Buying one of these policies when you're young can help you potentially lock in a lower premium for the rest of your life.
Universal Life Insurance
Universal life insurance is another type of permanent coverage. It also can last your entire life as long as premiums are paid. What's different about universal life insurance is that you can adjust the premium based on your needs. This payment flexibility can be handy when your income goes up or down. Just keep in mind that increases in coverage are subject to underwriting, and there must be enough cash value in the policy to cover monthly charges if a lower premium is paid than the amount selected at issue or if a premium payment is skipped. Additional premium payments may need to be made to keep the policy in force.
There are a number of reasons to consider buying life insurance when you're young. For more information, consider meeting with a financial representative.