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.
Related: All about life insurance
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.
Let’s consider the reasons why.
What’s Ahead:
Younger = cheaper
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.
Simply put, your life insurance company wants you to live as long as possible!
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.
Related: Whole life insurance vs term life insurance
Related: For the best price on term life insurance, stay online
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.
Sproutt is a life insurance aggregator (sort of like kayak.com but for life insurance) whose goal is to connect healthy young people with affordable life insurance options so they all the price quote research for you and present you with your best options. Sproutt’s marketplace is easy-to-use and your coverage options are offered to you according to your lifestyle, needs, and preferences.
If you’re looking for term life insurance specifically, you should also check out Bestow. You can get a quote online in just a few minutes, and you won’t even need to take a medical exam.
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.
Finally, with estate planning, you’ll find you’ve got a lot of questions. Check out Trust & Will to get the very best legal advisors to help you with all your decisions.
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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Article comments
If you are paying the same premium for 20 year insurance as you are for 30 year, isn’t it cheaper to wait? In the example, since both cover you until you are 55 that is a wash, but you would have paid 30 years x 888 per year = 26.6k over the life of the policy versus 20 years x 912 per year = $18.2k over the life of the policy. Granted you were covered for 10 extra years from ages 25-35, but if you didn’t have dependents or a need for life insurance at that age isn’t it a waste? I am just worried about getting it too early and then not having dependents for another 5-10 years and the life insurance expiring when I am older with kids in college and then having to get another policy which will be way more expensive. Please let me know your thoughts on this.
Honestly, I have no kids and I’m not married. I’m in my mid 20’s and I purchased $500K term policy for 30 years. Why? Well, I want to get married and have kids one day but just because I don’t have neither at this time, I have a mother, sister, and nephews and nieces that I love more than anything. If something happens before I have kids, I am sure my family would be very grateful when that $500K check comes their way. Maybe you guys are different.
Personally I would never recommend someone in their early to mid 20’s to buy term life insurance – The price difference from 25 to 35 is not that significant compared to the significant difference of starting to invest at 25 compared to starting at 35.
Your point is well taken AJ. But the article is mostly aimed at people who know they’ll need life insurance, but delay it until some unspecified later date, when it will cost a lot more, or even be prohibitive due to health conditions.
How do you know how much coverage you’re going to need if you don’t have any dependents? You might buy too little and have to get an additional policy later anyway. And you don’t know when (or if) you’ll end up getting married, so you could be paying for years of coverage you don’t actually need.
Hi Daniel – Since life insurance is so inexpensive when you’re young you can just buy as much as you feel comfortable paying. 20-something is a time when you can buy a $500,000 policy for just a few hundred dollars per year.
HI Kyle – Strictly from a numbers standpoint that may be true. But not everyone invests the money they don’t spend, probably most don’t. Also, there’s the health factor. Should your health decline in the future, the cost of life insurance may explode.
That’s a pretty simplistic view to take. You forgot the significant effects of compound interest and opportunity cost. I actually ran the numbers a few years ago to see and it’s basically a wash. You may be paying more later but you have earned more from the money you saved.
I also think that if your in the situation where your decision is between funding a life insurance policy or extra funding for your 401K, and you have no real dependents, then I’d go with the 401K every time.
Granted, this site likely has a very different readership than the general public, but I think if you’re making good financial decisions and have no dependents then the purpose of life insurance is greatly reduced.
I did think of one exception to my above logic:
If you carry a significant amount of student loans and your parent co-signed, then some amount of life insurance is likely advisable.
Regardless of the terms and conditions, your parents could get hit with a large tax bill for the debt discharge even in a best case scenario. Worst case they may be liable for the whole amount, and it could become due in full immediately.
If you are comfortably paying off your loans you could instead pursue getting your parent released from the loan as co-signer to avoid this scenario completely. This will take time, however.