Think you’re too young for life insurance?
Here’s the truth: With very few exceptions, the younger you are when you buy a life insurance policy, the less you’ll pay.
Although hundreds of factors determine life insurance premiums, age is one of the most critical components, and it makes a strong case for buying life insurance as early in life as possible.
What’s Ahead:
Younger = cheaper
Simply put, your life insurance company wants you to live as long as possible!
When a life insurance company considers an applicant, they focus on the risk the applicant is likely to make a claim at some point in the future. When it comes to life insurance, the ultimate risk to the company is the death of the applicant.
You probably understand that the death of the applicant requires the company to pay out a death benefit. But that’s not the only risk to the life insurance company.
Another is the length of time that the policy is likely to remain in force. People can (and do) cancel life insurance policies at any time. So the longer you hold a policy, the more money that the insurance company will earn.
A life insurance company’s revenue is based upon the premiums collected from every customer minus the death benefits paid out within that group. So the critical job of a life insurance company then is to minimize the likelihood of an early payout in each policy that they approve.
This is important in regard to both whole life policies – which the company will ultimately pay out whether you die or not – but even more in the case of term life policies.
Read more: Term Life or Whole Life Insurance – Which is right for you?
Term life policies have limited time periods (for example, 30 years). So the obvious preference by the life insurance company is that you won’t die before the term expires. In that case, no death benefit will ever be paid out, and the premiums collected largely represent profit to the company.
That brings us back to the age factor, and why it’s a major component in the determination as to whether or not to approve a policy, and at what rate. The younger you are when you apply for a life insurance policy, the less likely it is that the company will ever have to pay a claim. That’s the goal.
As a result, life insurance premiums are generally considerably lower the younger that you are at the time of application. Premiums will typically rise with age since the company has to adjust for the higher risk of death that increased age brings. However, your health will also play an important role in calculating premiums or becoming approved for a policy at any age.
If you’re ready to buy life insurance and you want to make sure you’re getting the best price, we suggest checking out Policygenius. They’ll scour the online marketplace for the optimum policy that suits your specific needs, so you don’t have to visit every insurer individually. Plus, they now offer term life insurance through their partner Brighthouse SimplySelect℠ that requires no medical exam.
Typically, if you opt for a no-medical exam plan, your premiums will go up – but Policygenius ensures that this isn’t true through these plans. All you’ll need to do is talk with a Policygenius agent over the phone.
Also, healthy = cheaper
If there’s one factor that’s more important than age in determining an applicant’s life insurance risk, it’s health. Statistically speaking, a person who is in excellent health is considerably less likely to see an early death than one who is in poor health. This is why life insurance companies pay particular attention to your medical history when underwriting a policy and why life insurance premiums for smokers can be 10 times the premiums for non-smokers.
But even your health is at least loosely related to your age. Since most diseases and impairments tend to develop later in life—typically more toward middle age—excellent health and youth are closely connected.
At least part of the reason why you should get life insurance when you are very young is so that you can get it before any chronic health conditions develop.
For most people, the ideal time to buy life insurance is when you’re in your twenties.
Though that may seem young, chronic conditions like high blood pressure and cholesterol often begin to show up after age 30.
If you can get your life insurance policy before any of these conditions develop, you’ll pay substantially less in premiums.
Some companies will give you discounts on your life insurance based on running, swimming, keeping a vegetarian diet, etc. The healthier you are, the less you’ll pay. So if you’re already keeping in shape, check them out!
Should you buy life insurance before you have an inherent need?
It may seem counter-intuitive, but age and health are strong reasons to buy life insurance before you have an apparent need. So it may not be so ridiculous then to purchase a large term life insurance policy even before you are married and have children.
The fact that you are young and healthy will not only keep the premiums low, but it will also enable you to buy a lot more insurance coverage than you may be able to a few years down the road when you actually do have dependents.
Related: How much life insurance do you need?
In addition, the possibility that you may develop health conditions at about the same time you have a family can never be ignored. It will result in permanently higher costs for life insurance should that happen.
What’s the cost of waiting to buy life insurance?
This is perhaps best demonstrated by an example. For this purpose, we’re going to ignore health as a factor in premium costs, and focus mainly on age.
Let’s say that you are 25 years old, single, childless, and in excellent health. Given that profile, you can purchase a 30-year term life insurance policy with a death benefit of $500,000, which will be about enough to cover the average young family. The premium for this policy will be $74 per month, or about $888 per year.
Now let’s assume that you decide to wait to purchase life insurance until you are married and have children, at about age 35. The cost for the same 30 year term policy for $500,000 will increase to $115 per month, or about $1,380 per year. That’s an increase in the premium of more than 50 percent! Worse, it will come at a time when you have family obligations, and extra cash will be short.
You may be able to work around this problem by reducing the term of the policy down to 20 years. At age 35, a 20 year term policy for $500,000 will be $76 per month, or about $912 per year. That will keep the premium about identical to what you could have gotten 10 years earlier, however it will reduce the term of the coverage by a full decade.
The fact that the 20 year policy taken at age 35 is just about the same as the 30 year policy taken at age 25 is not a coincidence. In each case, the term of the policy will expire at age 55. That means that the risk between the two policies is just about equal. The only difference—causing a small increase in the premium at 35—will be the fact that you’re 10 years older. That does carry a slight risk of early death, certainly more so than it would at age 25.
Are there any advantages of estate planning while you’re young?
The question is a good one, but our answer is a resounding yes! There are a few reasons why, but let’s start with the fact that life – at the end of the day – is uncertain. And it’s always better to have a will or living trust set up.
Other reasons for estate planning while you’re young: saving on fees in court and taxes around probate – which if you don’t have an estate set up can rack up a lot of costs.
Summary
While you’re considering all the other financial priorities that you have as a young adult, you might also want to give some time and attention to taking care of potential future life insurance needs.
It will be less expensive to purchase life insurance now, while you are young and in excellent health, than it may be a few years down the road when you have a family to care for.
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