When Should You Get Life Insurance?

Experts recommend that you purchase life insurance when others rely on your income or have a mortgage they’ll be paying if you die. This includes children, spouses and homemakers.

There are several ways to calculate your potential life insurance needs, including the “10 times income” rule and the DIME (debt, income, mortgage and education) formula.

Why Younger Is Usually Better

There are multiple ways to calculate how much life insurance coverage you might need. Some methods use formulas like multiplying your income by 10, while others factor in your debt, mortgage and final expenses.

Regardless of how you determine your life insurance needs, it’s important to remember that the younger you are, the less likely you will have to pay for a policy. This is because insurers take into account your age, family health history, lifestyle, occupation and tobacco use when calculating your premium rate.

People in their 20s are typically in good physical health, so they pose a lower risk to the insurance company. Consequently, they often receive affordable term life insurance rates.

When to Purchase Term Insurance

The main reason to buy life insurance is for your loved ones to have a financial safety net if you die. The death benefit should cover any debts, replace your income and pay for things like funeral expenses and college for your children.

Term policies provide coverage for a certain period of time, and the premiums are much lower than permanent life insurance. Some policies build cash value that you can borrow against or use to offset the premium. These cash values are usually low in the early years and build gradually over time.

If you need life insurance for a specific length of time, such as while your children are young and paying off a mortgage, it may make sense to get a term policy. Otherwise, it is probably too expensive to consider. Most term policies last 10, 20, or 30 years. Some companies also offer one-year terms for people who want to try out a policy without committing.

When to Buy Permanent Life Insurance

Unlike term insurance, permanent policies like whole life or universal policy offer a death benefit along with a savings component called cash value. This is money that you can borrow against or withdraw at a rate of return similar to a personal loan. In addition, some permanent policies, including whole life and indexed universal life, pay out dividends, which can be used to help pay the premium.

However, purchasing permanent coverage comes at a cost, so you should consider it carefully before making a commitment. The longer you wait to purchase a permanent policy, the more expensive it will be. You also run the risk of developing health problems that will raise your premiums or even make you ineligible for some plans. If you’re not sure whether permanent insurance is right for your needs, consult with a fee-based advisor. They can guide you through your options and help you weigh the pros and cons of each.

Cost of Waiting

One big downside of waiting to purchase life insurance is that it increases the chance that a person will develop serious health issues that may make it difficult or expensive to obtain coverage.

Aside from that, the more a person waits to buy life insurance, the more likely it is that premiums will increase. This is because a person’s age is one of the primary factors in determining life insurance premium rates. As a result, people who wait to purchase life insurance often end up paying significantly more for coverage than those who act sooner.

This can leave a family with little to no money after the death of a loved one, which can lead to financial hardship. As such, it is important for people to consider the value of purchasing life insurance when they are young and healthy to lock in low premium rates.

When Should I Buy Life Insurance for My Child?

Though childhood mortality rates are at historical lows, tragic deaths can still occur. The payout from a life insurance policy can help cover funeral costs and ease financial burdens on grieving parents and family members. It can also help cover any lost income if a child was the primary breadwinner, or pay for care expenses that would not have otherwise been covered if their parent had to step away from work to tend to them.

Children’s whole life policies (with a payment schedule that extends through age 100 or higher) offer permanent coverage, accumulating cash value over time and allowing beneficiaries to change to their spouse and children in later years. However, purchasing a separate life insurance policy for your child is not without cost. It is typically pricier than buying a term policy for adults. If you do opt to buy a permanent policy for your child, make sure the death benefit covers any outstanding debts or obligations, and that the premium is affordable.

Should I Buy Life Insurance When I Am Young

Buying life insurance while young can make sense for several reasons. For one, it’s typically cheaper than buying a policy at an older age. The older a person gets, the more likely they are to develop serious health problems that increase life insurance premium costs or even disqualify them from getting coverage entirely.

In addition, a young adult may qualify for policies that don’t require a medical exam or have lower monthly premiums than a term or permanent life insurance policy with the same death benefit in a later age group. Additionally, a younger person is less likely to have major debt such as mortgages and student loans that could leave their families struggling.

In your 20s, you may be preoccupied with starting your career and managing the other financial responsibilities of being an adult. However, you should consider life insurance as a way to help ensure your family will have the financial protection they need in case of your unexpected death or disability.