It’s true that anyone can benefit from the peace of mind that comes with holding a life insurance policy, although certain groups are at far lower risk of imminent death than others. No one would assume that a young, healthy, twenty-something suffers the same risks as an eighty-something, for example.
Yet, there is a common misconception that young adults simply don’t need life insurance. Certainly the risk of death is much lower, but accidents, injuries, illness, and death could strike at any time, and responsible adults don’t want to leave their family members holding the bag for medical and end-of-life expenses. They’ll have enough to deal with if their child, sibling, or spouse suffers an untimely death.
The real problem is that most young adults are just starting out in life, with little extra income and plenty of expenses, including housing and student loans, just for example. Most are starting in entry-level positions following college and they have big plans for purchasing homes, starting families, and perhaps even launching a business. In other words, life insurance may not be the top priority.
The good news is that there are options for young adults to secure life insurance coverage at affordable rates. If you’re interested in taking responsibility and ensuring that your loved ones will be cared for in the event of your unexpected demise, here are a few things to consider when choosing the best coverage.
Whole Life and Term Life
There are two main types of life insurance coverage: whole life (or universal) and term policies. Whole life insurance, as you might have guessed from the name, is a life insurance policy you keep and maintain throughout your entire life. As long as you make payments faithfully, your coverage will never expire, and the rates you lock in should not change, regardless of increasing risk factors as you age.
Universal coverage has many advantages, but cost is not one of them. Term life policies, on the other hand, tend to be less expensive than their whole life counterparts because they include an expiration date after which coverage ceases.
You could choose from common term policies of 10, 20, or 30 years, just for example. What happens when your term expires? At that point you lose coverage and you will have to renew your policy at an adjusted rate (for age and any other risk factors that may have developed in the intervening years), or you can change to a policy that better fits your financial needs at that time.
The main reason most young adults opt for term policies is because the rates work better with their limited income. However, there is another good reason to select a term policy, especially a shorter term like 5 or 10 years.
If you’re just starting your career, your family, and so on, you probably don’t have a ton of debts that will pass on to family members, so you won’t need a huge amount of coverage to begin with – just enough to pay for end-of-life expenses and maybe a little extra for loved ones. In addition, you’ll still be relatively young, and chances are, healthy, a few years down the road.
What this means is that your rates for insurance will not change significantly by the time your term life insurance expires. What is more likely to change is your income, meaning that you can pay for more expensive whole life insurance when your term expires, making term life insurance an excellent interim option for the majority of young adults. Also, term coverage is commonly purchased when buying a house or taking out a large loan — helping to cover your beneficiaries in the event of your death before paying down the loans.
As a young adult, you might not have the cash on hand to pay for a more expensive whole life policy, and frankly, young, healthy adults don’t tend to be at very high risk for death. While there are benefits to starting with universal coverage early (locking in lower rates), many young adults find it preferable to take out a term policy with plans to upgrade to universal coverage when the term expires.
The idea, naturally, is that you’ll be in a better position to afford a whole life policy at that point, and if you’ve married or started a family, you’ll have a greater need for continuing coverage. That said, the day may come sooner rather than later that you’re ready to convert to a universal policy, and this makes a term policy that offers options for upgrades desirable.
Before you take out any term policy (or universal, for that matter), make sure you understand all of your options and think about seeking policies that allow you to adjust coverage or upgrade without penalty.
Gerber Whole Life Plans
Most parents don’t bother to take out life insurance policies on children and adolescents, but for families interested in this precaution, Gerber (yes, the company best known for baby food) offers whole life options at affordable rates, and the policies come with a variety of desirable benefits. For starters, policies can transfer from parent, grandparent, or legal guardian ownership to the young adult named in the policy at the age of 21, so coverage need not lapse just because a child has entered the realm of adulthood.
Plans range from $5,000 to $50,000+ in coverage, and these policies accumulate cash value as you pay into them. This value can later be withdrawn or borrowed. Once a child reaches the age of 21, they can either continue paying for the policy or receive the accumulated cash value.
Gerber’s whole life insurance policy offers two major benefits to parents, grandparents, or guardians, not to mention the covered children. First, as all life insurance polices do, such a policy ensures that end-of-life expenses will be financially taken care of in the event the worst should happen. However, more commonly, they create a sort of savings account that could help to pay for college or unanticipated medical expenses, or be used for other costs. Or a young adult may choose to continue coverage. Either way, this unique plan is a good one for families to consider when it comes to life insurance for young adults.
To learn about options in your area, or if you have any questions, feel free to submit your information below and I’ll reach out.