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Life insurance for young adults

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Many consumers may only consider life insurance as necessary once they get older. Unfortunately, this means they may miss out on the benefit of purchasing coverage when they are younger and premiums are typically much cheaper than when they are older. The best life insurance for young adults may be a policy that provides a lifetime of coverage that will adapt to their changing needs. Beyond just providing financial compensation in the event of a death, life insurance can be an essential component of financial planning for young adults and provide an important level of financial security for their family.

What is life insurance for young adults?

Just as car insurance protects your finances in the event of a car accident or homeowners insurance protects your finances in the event of a catastrophic loss to your home from a fire or tornado, life insurance provides essential financial protections for your loved ones in the event that you pass away. Although life expectancy in the U.S. has increased over the past few centuries, life insurance is designed to cover financial obligations for your dependents or loved ones in the event of an unexpected death. Life insurance for young adults provides the same type of coverage as life insurance for older adults, but the insured’s financial goals may be different depending on your current age. An older adult may be thinking about life insurance as a way to leave children, grandkids, spouse or partner a lump sum of money after they pass away.

On the other hand, young adults may consider term, whole or a universal life insurance policy as a way to start building a nest egg toward retirement, to cover future estate taxes or to guarantee coverage prior to developing medical conditions that could affect eligibility or rates later in life. If you choose term life insurance as a young adult and want the coverage to continue after the policy ends, many insurers allow you to switch your life insurance coverage to a permanent policy.

Why young adults consider life insurance

Young adults may not commonly think about purchasing life insurance while in their 20s and 30s. And yet, as it turns out, there are several potential benefits to purchasing life insurance while you’re young. The following points shed more light on why purchasing life insurance in your younger years may be a prudent choice.

To lock in affordable premiums

Generally, the younger and healthier you are, the lower your life insurance premiums will be. If you get life insurance when you’re young, you’ll be able to lock in lower premiums that may save you from paying higher rates as you age or develop any health issues. If you purchase permanent life insurance when you’re young, your cash value portion will also have more time to accumulate interest and/or investment returns.

To save you from paying higher prices if your health deteriorates

Most life insurance policies require you to pass a health evaluation or medical exam before they insure you. If you have a pre-existing medical condition, it can affect the cost of coverage or even result in a denial. Once you are locked in with life insurance coverage, your insurance company usually cannot increase your premium if you develop a health issue. If your family has a chronic or genetic illness history, getting coverage early before you develop the condition may be a good way to guarantee yourself a lifetime of insurance before it becomes difficult to obtain coverage or too expensive.

To have more time to build cash value

A permanent life insurance policy may be beneficial for young adults as a long-term financial planning strategy. Permanent life insurance does not end after a specific period of time, as it does with term insurance policies, as long as premiums are paid. In addition, permanent life insurance adds an investment element. Your premium goes toward the death benefit amount you may leave to your beneficiaries and accumulates in a cash value account you can grow and access throughout your life. As with all savings and investments, the sooner you get started with a permanent life insurance policy, the larger the cash value will grow over the years.

Term life insurance vs. whole life insurance

Two common types of life insurance available are term and whole life insurance. Term life insurance provides coverage for a set period of time, typically 10, 15, 20 or 30 years. Term life insurance tends to be much cheaper than permanent life, but coverage lasts only as long as the set term. Those who only want coverage for a set period of time, such as when their children are young, may appreciate this limited time frame. Whole life insurance, on the other hand, does not expire, as long as premiums are paid, and typically builds a cash value account for your use while you are alive. You may be able to borrow against the cash value or draw from the accumulated funds. For healthy young adults who can typically qualify for the lowest rates, these aspects may make a whole life policy an attractive option.

Frequently asked questions

What type of life insurance policy is best for young adults?

Choosing the best life insurance policy type for you is a personal decision, and choosing among the various types of life insurance may be easier with the help of a financial advisor or licensed life insurance agent. Young adults who have time on their side may find it profitable to be more aggressive with their investing strategy, such as leveraging life insurance, provided they are comfortable with the balance of risk and reward.

For example, a whole life insurance policy’s cash value earns nominal interest — similar to a savings account — and may not be ideal for long-term investment potential. Universal life policies allow you to invest the cash value in stocks and mutual funds, which could provide a larger return. Equities have more potential for growth but come with greater risk due to volatility of the financial markets. Choosing an index universal life policy exposes you to moderate risk and allows you to invest in an index, such as the S&P 500, which has historically performed well over long-term investment timelines of 10 to 20 years. Discuss options with your financial advisor or a life insurance agent to see which option may work best for you.

How has the pandemic impacted life insurance sales for young adults?

According to an analysis conducted by researchers at the Insurance Information Institute, life insurance sales for young adults have skyrocketed since the pandemic began, with a 7.9% year-over-year increase in sales in 2020 and the largest volume on record for digital sales..

Is the death benefit I leave taxable?

Generally speaking, the death benefit of a life insurance policy is passed on to your beneficiary tax-free. Beneficiaries typically do not have to worry about paying tax on a life insurance death benefit they receive.

Should I purchase life insurance for my child?

Parents may choose to purchase life insurance for their children for a few key reasons. Purchasing life insurance for your child provides a death benefit to cover funeral expenses or other costs in case of an unexpected tragedy. In other instances, parents are motivated to purchase life insurance for a child to help make them more insurable in the future and potentially lock in low rates for the rest of their life, especially if the child is either disabled or immunocompromised. Ultimately, whether or not you purchase life insurance for your child is a highly personal financial decision with implications for parents to consider.

Written by
Lizzie Nealon
Insurance Writer
Lizzie Nealon is a former insurance writer for Bankrate. Her favorite part of the job is making home, auto and life insurance digestible for readers so they can prepare for the future.
Edited by
Insurance Editor
Reviewed by
Director of corporate communications, Insurance Information Institute