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Life insurance is cheapest when you’re young and healthy, so buying a policy in your 20s can save you money while still securing important financial protection.
If you’re under 30, single, and don’t have children, life insurance probably isn’t the first thing on your mind. While life insurance is an important part of a comprehensive financial plan for people with dependents, purchasing a policy means adding monthly or annual premiums to your budget. For many young adults who are just starting their careers or saving for future goals, those premiums can often seem like an unnecessary expense.
But buying life insurance in your twenties can actually save you money in the long run. How do you determine whether the cost of life insurance is worth it? There are a few simple guidelines that can help you decide whether it makes sense for you to buy life insurance right now.
Life insurance gets more expensive as you age, so buying a policy now helps you lock in a good rate
If you financially support someone, have student loans or other debt, or are planning on having kids, life insurance is a good idea
Term life insurance is an affordable and flexible option for most people under the age of 30
Life insurance coverage is more affordable than you might think. But it gets significantly more expensive with age because premiums are set by insurers based on your risk of dying while the policy is active. So being young and healthy is a good opportunity to lock in a cheap, fixed-rate for decades. Each year that you delay buying a life insurance policy, the cost of premiums increases by 4.5 to 9% on average. That means that a healthy woman who takes out a life insurance policy at age 20 could pay as little as $13.91 monthly for the same policy that would cost a 60-year-old $101.50 each month in premiums.
Below is a cost comparison over time for a 20-year, $250,000 life insurance policy for a healthy woman in Ohio, starting at age 20.
|Est. Premium (Monthly)||$13.91||$13.30||$20.44||$52.77||$101.50|
|Est. Total Cost||$3,338.40||$3,192.00||$4,905.60||$12,664.80||$24,360.00|
Methodology: Sample monthly premium rates based on a female non-smoker in Columbus, Ohio, who qualifies for a preferred best rate class, obtaining a 20-year, $250,000 term life insurance policy. Calculation is based on a composite of policies from AIG, Banner, Brighthouse, Lincoln, Mutual of Omaha, Pacific Life, Principal, Protective, Prudential, SBLI, and Transamerica and may vary by carrier, term, coverage amount, health class, and state. Not all policies are available in all states. Rate illustration valid as of 11/1/2020.
Over the life of this policy, a 20-year-old woman would pay approximately $1,500 more if she waited until she was 40 to buy the same policy, and nearly $21,000 more if she waited until she was 60.
However, while it’s cheaper to buy life insurance when you’re young, your age isn’t the only factor that determines the cost of your policy. The following also affects your premiums:
Risky hobbies like skydiving
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Life insurance provides a financial cushion for your loved ones in the event of your death. If any of the following circumstances apply to you, you should consider buying life insurance as soon as possible:
If there’s someone who currently relies on your income, you’ll want to make sure they’ll be able to stay afloat financially if you unexpectedly pass away. That person could be a partner or spouse, a child, parent, sibling, or even a business partner.
Since the death benefit from life insurance is tax-free and can be used for anything—including funeral expenses, rent, or paying off debt — life insurance protects the beneficiary of your policy from financial hardship that could result from your death. You can name anyone (or more than one person) as your beneficiary, and you can easily change or update that beneficiary at any point during the policy term if your situation changes.
While federal student loans are typically forgiven if the borrower dies, most private student loans aren’t. That means that a parent or anyone else who may have co-signed your student loans could be left on the hook for your debt when you die. (The same goes for any other loans you might have taken out with a co-signer, such as a small business loan or a mortgage.) A life insurance plan that names the co-signer of your loans as your beneficiary can ease the financial burden that might result from your death.
Many people wait until their children are born to purchase life insurance. But if you know you want kids down the line, you can lock in a cheaper premium rate by buying a life insurance policy now. Not only will you be securing financial protection for your future kids, but by saving on premiums, you’ll be freeing up more money for other expenses down the road, such as child care and college.
A term life insurance policy is the right choice for most people, especially those under 30. Term life insurance covers you for a set period (known as a term) that usually lasts between 10 and 30 years. When you purchase term life insurance, your rate is set at the time you sign the policy and does not increase, which is why it’s so advantageous to buy one when you’re younger and healthier.
Nicholas Mancuso, the senior operations manager of Policygenius' advanced planning team, suggests people aim for 10-15 times their income when purchasing a life insurance policy. Your policy amount should also take into account any debt you owe (plus interest).
Though being young is a good time to lock in a cheap rate on a policy, life insurance doesn’t make sense for every person under 30. You probably don’t need life insurance if you are:
A single person without any dependents or debt who isn’t planning on having kids in the future.
A low-income earner whose budget simply can’t cover the cost of premiums.
Self-insured, or someone who already has enough assets to provide for your family and other dependents in the event of your death.
Premium rates are typically cheaper when you’re younger and healthier in your 20s and 30s. If you anticipate needing life insurance in the next 5-10 years, it’s best to buy a policy sooner rather than later to save money in the long run.
If you have shared debts (mortgage, student loans) or anyone relies on your income (a partner, children), you should get life insurance coverage. If this isn’t true today, but will be true in the next 5-10 years, you should also consider life insurance.
Experts generally recommend getting a life insurance policy that can cover your outstanding debts, plus 10-15 times your income. So if you make $50,000 a year and have $25,000 in outstanding student loans, you should buy a life insurance policy with a death benefit amount between $525,000-$775,000.
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