In your 20s, buying life insurance likely isn’t at the top of mind. You’re probably focusing on paying off student loans or meeting basic expenses, and adding yet another bill to the mix can be hard to justify. Still, making room for life insurance in your financial plan may make sense.
It may be a good idea to buy life insurance in your 20s if you have dependents who rely on your income, you have a lot of debt or if you want to lock in a low rate while you’re young and generally in good health. Locking in a good rate now can give you peace of mind knowing there’s a financial safety net for the people you care about most.
When It Makes Sense to Buy Life Insurance in Your 20s
Purchasing life insurance may protect anyone who would be financially impacted if you die by providing them with a cash payout. The following are some instances where buying life insurance while you’re young may be a wise choice.
Consider getting life insurance if you want to help mitigate the financial burden your loved ones might face if you die. Your beneficiaries can receive a tax-free death benefit, which they can use to pay debts, living expenses, college tuition or for any other purpose.
What Type of Life Insurance Should You Buy?
When it comes to life insurance, policies generally fall into two types: term life insurance and permanent (whole) life insurance.
Between the two insurance options, you may want to lean towards buying term insurance if you’re in your 20s because you can lock in a better rate when you’re young. Term life insurance is also significantly less expensive than permanent life insurance. But since term insurance one day expires, you may want to choose a 30-year policy so you don’t have to buy another policy later—potentially with higher premiums—when you still need coverage.
Here’s how they differ:
Term Life Insurance
Term life insurance covers you for a specific period of time—generally from one to 30 years—and if you die during that term, your beneficiaries receive a lump-sum cash benefit. With term life insurance, your premiums remain the same from when you purchase your policy unless you change your coverage.
A healthy 25-year-old female can expect to pay monthly premiums of about $27 for a 30-year, $500,000 policy, according to Policygenius. Term life insurance may be a good option for 20-somethings because you can lock in a better rate when age and health are on your side.
Permanent Life Insurance
Permanent life insurance, also known as whole life insurance, offers coverage that lasts the remainder of your lifetime plus the opportunity to accumulate cash value on a tax-deferred basis. As long as you pay the premiums, your policy remains in force.
Permanent insurance is considerably more expensive than term life insurance, with policies that can run hundreds of dollars per month. But the cash value may be worth it to you, even if the death benefit isn’t issued for decades. By purchasing permanent life insurance when you’re younger, the cash value has more time to grow than it would for older policyholders.
When You May Want to Wait to Get Life Insurance
The decision to get life insurance should be more about your needs rather than age. Here are some scenarios when you may be better off waiting to get insured or opting against getting life insurance altogether.
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