Landing your dream job, or your dream internship. Moving to a new city. Embarking on a torrid love affair (or three?). Meeting the love of your life. Buying your first house, or saving up for it. Finishing your first marathon. There are so many possible bucket list items to complete in your 20s, and establishing a life insurance policy is probably not one that ranks very high on many such lists.
But could your 20s, in fact, be the best decade to purchase a policy? Many financial experts—and a host of prudent 20-somethings with their own policies in hand—say absolutely yes. Here's why. (For related reading, see: Retirement Planning for 20-Somethings.)
Buy Early, Save MoreBuying something just because it's cheap isn't usually great consumer advice. But what about buying something you'll eventually need because it's much cheaper than it will be later? While buying life insurance might be the farthest thing from your mind during your freewheeling 20s, it could be the most economically strategic time in your life to invest in a policy.
Before taking the plunge, however, you'll want to make a detailed analysis of your individual situation before you navigate the all-too-often overwhelming variety of policies that exist.
First things first: do you actually need life insurance? While that may sound like a metaphysical question, it's a purely practical one that you can probably easily answer. For most adults who were born prior to the Reagan administration, that answer is a resounding yes. But for 20-somethings who can't claim any dependents on their tax returns, are unmarried, or don't have relationships that would be negatively impacted by their untimely demise, buying life insurance might not be a logical move. (For related reading, see: Insurance for Millennials.)
Going SoloIf your inventory of those who financially depend on you comes out to zero, you're hardly alone. According to a 2015 Gallup poll, it's not simply that increasing numbers of Millennials are not getting married in their 20s or 30s. It's that they're also delaying commitment and cohabitation of the not-legally binding variety: the number of 18 to 29-year-olds who reported that they were single and not living with anyone increased from 52% in 2004 to 64% just a decade later.
In fact, according to a study by the Pew Research Center, only one in three Millennials can claim to be the head of their own household—a huge departure from generations past. For those in this ever-growing group, life insurance might simply not count as a top priority. An obvious exception, of course, is single young adults who have children.
Millennials are notoriously spoiled for choice, prizing flexibility and options over security and the status quo. That attitude extends from the instant gratification of Tinder to financial decision-making. After all, if you're not settling for love, why would you settle on insurance? While it's tempting to go with the first Google hit of an insurance agent whose address just happens to show up first—probably just because they're 0.02 miles from your current location—resist going with the path of least resistance. Just like online dating, it pays to shop around. (For related reading, see: 6 Books for Millennials Interested in Investing.)
One excellent way to find an insurance agent who suits your needs is, unsurprisingly, through a friend's or family member's referral. However, don't assume that Uncle Joe's agent is the best agent for you. Ask which companies a potential broker works with: you'll want to make sure that they represent a variety of clients that you can pick and choose from.
Term vs. Whole LifeFor anyone considering buying life insurance, one of the primary questions is whether to go with term insurance or whole life insurance. For the under-30 (and even under-40) set, term insurance represents a far better deal: in general, you'll get a return of seven to 10 times for every dollar you invest.
Term insurance works like it sounds: you buy a policy that lasts for a specific term. If you're 28, you might buy a 20-year policy, and then reevaluate your life insurance needs at age 48. You can always buy another 10- or 20-year policy at a later date. Alternatively, a 25-year-old who purchases a 40-year policy will be basically set with life insurance until they can access their retirement account at age 65, which is generally an age you can expect your expenses to go down and your IRA returns to go up.
While people in their 20s get a morbidly high score for car accidents, gun deaths and suicides, they tend to suffer far less from illness and disease—especially life-threatening diseases like cancer and heart disease—than their older cohorts. That's one reason life insurance is far cheaper for this group and why it pays to purchase a policy before you might develop any conditions, such as Type 2 diabetes, which might make your monthly premium significantly higher. (For more, see: Life Insurers and Millennials: Strange Bedfellows?)
The Waiting GameMaybe you've been toying with the idea of buying life insurance, but figure you'll wait a decade—say, you'll buy it at 38 instead of 28, when you figure you might be married with kids. While this plan is initially a logical one, it doesn't necessarily make sense financially. Expect your premium at 38 to be significantly higher than the one you would pay in your late twenties. In fact, the overall cost of a term insurance policy that lasts until age 60 will be about the same whether you begin the policy in your late twenties or wait until you're nearing 40.
In other words: all costs being equal, why not buy in early and benefit for the longer span of coverage?
The Bottom LineRemember, the policy your grandfather took out several decades ago—very likely a whole life policy—is probably not the policy that will work for you. While whole-life insurance allows you to accrue cash in a secure account on a tax-free basis, many experts consider that the various commissions, fees and surrender charges end up significantly gouging any potential profit. By finding a good agent who understands the particular insurance needs of the Millennial generation, you'll ensure that your ultimate decision will be economically sound, not only for the present but also for the seemingly faraway future. (For related reading, see: Using Insurance to Win Over Millennial Clients.)