By Peter Mastrantuono
The transition to adulthood carries a number of new responsibilities, including full-time employment, paying bills and saving for the future. Life insurance typically represents a low priority for young adults. And that may be a mistake.
Though there is no hard, age-related trigger (e.g., 21) for when someone should buy life insurance, young adults may have several good reasons to consider buying life insurance well before getting married or starting a family.
Reasons Young Adults Should Consider Life Insurance
Life insurance for some young adults may not be an urgent financial matter due to an absence of financial dependents, no plans to have children, owning sufficient assets to cover final costs, such as a funeral, or a limited income that does not afford them the ability to budget in the premium costs.
For many others, however, there are three compelling reasons that individuals in their twenties and thirties ought to consider obtaining life insurance protection.
- Outstanding Student Loans: While federal student loans may be discharged upon a borrower’s death, many private student loans, most specifically, loans that were co-signed by parents or other family members generally are not. The repayment of these loans becomes the obligation of the surviving co-signer.
Individuals who do not wish to burden their parents or other family members with this debt can and should buy life insurance coverage in an amount to cover the balance of any outstanding loans. (This also applies to any other form of credit that was established with a co-signer, e.g., a car loan.)
2. Buying Early Can Save Money: Life insurance is remarkably inexpensive for the young, provided they are in good health. With expectations of marriage, buying a home and raising a family, it may be a smart strategy to buy coverage while the premiums are very low rather than wait five to ten years before actually needing the coverage when rates will be higher.
3. Someone Financially Relies on You: Younger generations are marrying later, if at all. But that doesn’t mean that they are not establishing new households with interconnected financial lives. Consider the simple scenario of living together. If a rent or mortgage payment cannot be met without both partners’ incomes, then having life insurance will help ensure that the surviving partner is not forced to move because of the unexpected demise of his or her partner.
Overcoming the Barrier of Misconception
According to one survey, Generation Y and Millennial respondents both indicated that the primary motivator of buying life insurance is “While you are young and healthy”, well ahead of marriage and having a child.
Yet, 40% of individuals indicated that the reason they did not buy life insurance is because it is “too expensive”, a misconception evidenced by today’s historically low rates for life insurance.
For individuals with questions about how much to buy and what type of policy to purchase, read our comparison of permanent and term life and meet with your financial advisor who can help you determine the most appropriate level of coverage given your personal circumstances.
Peter Mastrantuono is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Peter worked for over 30 years in the wealth management industry, focusing on retirement planning, investing, asset allocation and financial planning.