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I get it – thinking about the time when you’re no longer around isn’t something you’re excited about doing.
It’s daunting, depressing, and, quite frankly, difficult to imagine.
But there are times when you have to. For example, when debating whether or not to get life insurance.
Is Life Insurance Worth It?
I often get asked whether you need life insurance at all at this age – and why. Some millennials find it hard to believe that insurance is necessary – and think it’s just a waste of their hard-earned cash.
But my answer is always the same. Not having it is a risk no one should take, no matter how young and healthy you are.
In this post, I’ll explain why not having life insurance is a huge mistake many people make – and why you should think twice before you say no to it.
What Is Life Insurance?
In short, life insurance is a policy designed to minimize the financial strain that your death would have on your family. It’s there to provide peace of mind to you and protect your loved ones in case anything happens to you.
While there are many types of life insurance policies, most will pay out cash to your family if you die while covered by the policy. You’ll be the one to choose how much you want your family to get and the amount of time you want the coverage to last.
Why Do Millennials Need Life Insurance?
It’s not surprising that when you’re young and ambitious, taking care of the financial situation without you in the picture doesn’t seem like a priority.
Heck, even saving for retirement at this age isn’t something many people do (even though they should!) – so how can you expect anyone in their 20s or early 30s to sit there and think about the day they die!
But if you can think of at least one person who would be financially worse off if you died – be it your parent, your partner or someone else – you should seriously consider buying life insurance.
Use Life Insurance to Cover a Debt
Additionally, if you have any debt that you’d be leaving behind if you died, taking out a life insurance policy is a must. Be it a private student loan, a mortgage, or a car loan – leaving that debt behind could seriously harm the financial situation of your family. Burying your loved ones in debt after they’d lost you is the worst thing that could happen – and I’m sure you’d want to do everything you can to avoid that.
Life Insurance Policies Offer Built In Savings
On a lighter note, there are life insurance policies that may offer built-in savings (e.g., a whole life insurance policy). Have you heard of the term “forced savings?” The best way to illustrate this is to think of buying a house. If you’re buying a house with a mortgage, you have to put money into your mortgage – so it’s “forcing“ you to save.
Whole life insurance may act as a “forced savings account,” too. It’s pricier than other types of insurance, but the policy accumulates cash value over time. The savings are funded by a percentage of your premiums – and your life insurance company may also pay a dividend from its annual profits. Honestly, it may not be the most efficient way to save – but it is making you save, while also helping you feel at ease about your family’s financial wellbeing if something happened to you.
The Cost of Life Insurance Is Less Than You May Think
Finally, what puts many young people off is the cost of life insurance. After all, millennials face many other financial challenges these days – and who needs another monthly expense, right?
Well, if you’re worried about life insurance leaving a hole in your pocket – I’ve got some good news for you.
I often hear people say they just can’t afford life insurance – because they imagine it to be very expensive. In fact, according to a study conducted by Life Happens, millennials massively overestimate the cost of it. When asked how much a $250,000 term life insurance policy for a healthy 30-year-old would cost per year, the median estimate given by millennials was $1,000, while the actual cost was just $160!
With people thinking life insurance is way above their budget, no wonder only 10 percent of millennials have the life insurance policy they say they need.
Millennials Get The Best Rates
The truth is, life insurance costs much less than you think. Being young and healthy gives you an incredible advantage when shopping for life insurance – another reason to get it now. As a millennial, you will typically get better life insurance rates than any other age group. The older you are, the higher the price – because your life expectancy decreases with age, while the risk of health problems increases. As a result, the cost of a life insurance policy goes up. Makes sense, right?
As a young and healthy individual, on the other hand, you could get a decent amount of term life insurance for as little as about $25 a month.
How Much Life Insurance Do I Need?
Pinpointing the ideal amount of life insurance coverage is tricky – but making some calculations will allow you to make a sound estimate. The best way to calculate it is by looking at your long-term financial obligations and then subtracting your assets. How much insurance you need will, of course, depend on your circumstances, but as a rule of thumb, it shouldn’t be less than ten times more than your income.
If you have any dependents, you’ll need enough insurance to cover their expenses if you die and your income stops.
If you don’t have any dependents, you should think about any outstanding debt (college, mortgage, car loan, etc.). You’ll want to make sure your beneficiaries have enough to continue paying off those debts.
Maybe you want to provide a financial cushion to your family – for example, covering some of their medical expenses or contributing to family vacations. Think about how much you usually spend on stuff like that by adding up your expenses – then you’ll have a better idea of how big the sum should be.
Finally, you also need to think about end-of-life expenses – such as funeral costs. Making sure your policy covers that would help take the financial burden off your family’s shoulders (my advice would be to factor in at least $7,000 for funeral costs).
A life insurance needs calculator, like the one at LifeHappens.org, can help you run the numbers.
What Are The Types of Life Insurance?
Do you find the various kinds of life insurance policies confusing? I don’t blame you! There’s a lot to take in – so let me break it down for you.
To make it easy, I’ve stuck with the two major types of life insurance. Click on the links to go more in depth with each type.
- Term Life Insurance – Term life insurance is set in place for a specific amount of time (i.e. 10, 15, 20 or 30 years) that pays only upon death or before a specified age. There is no cash value associated with this type of policy.
- Whole Life Insurance – Whole life insurance, also called Permanent Life Insurance, is an insurance contract that can be kept active until a person dies and pays a death benefit. This kind of policy may accrue a cash value that can be accessed for use. Indexed Universal Life (IUL) policies fall under this category as well.
See our life insurance overview for a more complete list of the types of life insurance.
How to Get The Best Life Insurance Quotes in 2020
Taking out life insurance is a smart financial move that you can make right now to protect your loved ones.
After all, you will only be paying a fraction of the cost, because life insurance rates for healthy millennials are significantly lower. In other words, getting life insurance as a millennial is a bargain – and missing out on the security it provides (for a small cost) would be a shame.
If you’re considering getting life insurance, but you’re not sure where to start, this list of 10 best life insurance companies will help. In the post, you will find a quick and easy summary of each company, their costs, as well as pros/cons, so that you can find a suitable option and make the right choice.