Life insurance is one of those things that just about everyone needs, even if you’re still in your 20s. Millennials are the most under-insured generation. Just over a third of those under 30 have life insurance compared to 60% of those aged 30 to 49. Recognizing that you need coverage is the first step but making sure you get the right policy is equally important. If you’re in your 20s or early 30s, here are the most important questions to ask when buying life insurance.
Find out now: How much life insurance do I need?
1. How much coverage do I need?
The amount of life insurance you need depends on several factors. These often include your age, income, debts and dependents, if you have any. If you’re single and have no children, you’re probably going to make your parents the beneficiaries of your policy. Plus if you don’t have a lot of debt, you may only need enough insurance to cover your funeral expenses.
On the other hand, you may have a family or thousands of dollars in shared debt. In that case, you might need a bigger payoff to ensure that your loved ones can avoid a financial hit. That’s especially true for married millennials who are the sole income-earner in the relationship. If you have children, you also want to think about their long-term financial needs like paying for college.
2. How long will I need the policy for?
There are two basic types of life insurance to choose from: term and whole life. Term life policies are designed to cover you for a specific period of time. This usually ranges between five to 30 years depending on your preference. Whole life policies, on the other hand, remain in place until you cancel the coverage or pass away, as long as you pay the premiums.
When you’re young, a term life policy usually makes the most sense since it acts as a sort of financial safety net. This kind of insurance assumes that you’ll be building wealth through other avenues like a retirement plan or investments. That way, once the policy expires, you’ll have a nest egg big enough for your loved ones to fall back on.
Whole life policies pose an attractive option since they build up cash value in your coverage. Then of course you have the added security of having an insurance policy in place for your whole life. There’s a trade-off in terms of how each of the policies compare in terms of cost.
3. How much insurance can I afford?
Because term life doesn’t offer cash value build-up and lasts for a specific length of time, this kind of coverage is usually much more affordable. Someone in their 20’s and in good health might be able to get away with paying as little as $12 or $13 a month for a few hundred thousand dollars in coverage. Whole life, by comparison, is a much more expensive choice in terms of the monthly premiums.
When you’re working with a tight budget, term life may seem like the more logical choice if you can’t afford to spend a lot but you don’t want to forgo life insurance. The added plus of going with a policy that has a lower premium is that it makes it easier to work towards your other goals, like paying off debt or funding a retirement plan so you’re able to maintain a more balanced financial outlook.
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