Building a strong financial foundation early in life is important, but to do it, you to have the right tools. For starters, you need a budget, especially if you are focused on building an emergency fund, saving for retirement, or paying off debts. Thinking about life insurance in your 20s isn’t fun, but it’s something you want in your financial toolbox.
But do you need life insurance if you’re still a young adult? Most people under 30 don’t have life coverage, usually because they don’t think it’s needed if you’re young and in good health.
However, there are a few food reasons to think about buying life insurance in your 20s.
The Benefit Of Life Insurance In Your 20s
Life insurance can help you to fill meet several financial needs in your 20s.
Support Your Loved Ones
One of the most important things is that it can be used to replace a lost income for your loved ones if you would be leaving behind a spouse or children who rely on your wages to cover their day to day expenses.
If you’re still in your 20s, it’s possible you’re single and not a parent, but this doesn’t mean things will stay that way. You might decide to settle down and start a family in your 30s or later, and at that stage in your life, the appeal of life and health insurance becomes much more clear.
Life insurance can also ease the pressure of funeral and burial costs or any other final expenses after you pay away. The average funeral can be very expensive, so even a small insurance policy could be a good investment if you don’t want your loved ones to be hit with the costs of a burial or cremation.
If you wait to buy life insurance, you will pay much higher premiums. As a general rule, it’s much less expensive to get life insurance as a young adult, so it’s better to buy it while you’re young. You will save money in the long run!
Life insurance can also be used to pay off any debts that are owed by your estate. In your 20s, your largest debt is probably student loans. Depending on the kind of loans you have, some of these will be automatically canceled, but if you took our private loans as a student, and your parents cosigned them, then the money is still owed after your death.
Take care of your finances
Legally, a cosigner shares equal responsibility for a debt. If your parents cosigned on your loans, and you die, your lender could still expect them to pay what you still owe. A life insurance payout could help your parents to pay off your remaining debts.
What Kind Of Insurance You Need
Life insurance for younger people tends to fall into two main categories: term and permanent. You should also learn the difference between Direct vs. Non-Direct Recognition Life Insurance.
Term Life Insurance
Term life insurance will cover you for a set amount of time. Depending on the policy, this could be between five and thirty years.
A policy of this kind will pay out a death benefit to your beneficiaries if you die before the term expires. How much that benefit is will depend on your individual situation.
Permanent Life Insurance
Permanent life insurance will cover you for as long as you pay the premiums. Universal and whole life are both types of permanent life insurance policies. Both let you build up cash value in your policy that you can later borrow against.
With both term and permanent coverage, your premium will likely stay level, which means that it won’t fluctuate over time.
Select The Option Best For You
Which option is best for young adults?
Besides the length of time you will be covered, the main difference between the two options is cost. A term life policy will usually have lower premiums than permanent life insurance. If your career is just getting started, the lower premium might seem like the best option for your budget.
You can also earn a higher rate of return by choosing a term life policy. Then, invest the money you’ve saved in a retirement account or a taxable brokerage account.
If you buy a permanent policy when you’re still young, then you can accumulate a healthy amount of cash value. The money will have longer to earn interest.
One of the ways to build a strong financial foundation is to invest in life insurance in your 20s. It might not seem necessary yet, but you will be grateful later in life.