Best Life Insurance Policies for Young Adults
There are three main types of life insurance policies: term life, whole life, and universal life. Term life is the least expensive because it only offers coverage for the length of your policy, and when the term is up, your coverage ends.
Whole life and universal life are types of permanent coverage and will only expire if you quit paying the premiums or cancel coverage. Premiums are higher because these policies almost always result in a payout from the life insurance company.
How much life insurance coverage do I need?
The general rule of thumb for determining the amount of life insurance you need is to multiply your annual income by 10. Then, adjust the amount based on your current and presumed future situation.
Let’s say you make $45,000 a year, your partner makes $50,000, and you have two young children. At minimum, you’d want a $450,000 policy for yourself and $500,000 for your partner.
On the other hand, if you’re single and plan to stay that way, buying a large life insurance policy isn’t necessary. But you need to consider your future life plans and whether a partner or kids might be a part of that, and adjust accordingly.
Why do I need life insurance if it doesn’t benefit me?
Since term life insurance is so cheap, especially the younger and healthier you are, getting a $500,000 policy on yourself won’t be a financial burden on you. You can get another policy if you want additional coverage.
Even if you plan a future with no dependents or debts to pay, your policy can cover your funeral and burial expenses, and the rest can go to your designated beneficiary. Beneficiaries can be anyone from close friends and family members, to institutions like charities and museums.
For millennials who have student loans, remember that if you have a co-signer, they are responsible for the bill if you don’t pay. When you pass away, a federal loan that’s only in your name will be forgiven, but a private student loan or a co-signed one will still need to be paid from your estate. Consider a policy that’s large enough to pay off these loans, credit card debt, or your car loan so that your family can pay the bills easily.
Finally, if you strongly believe you have no need for a full life insurance policy, consider a final expense policy. It will be large enough to cover funeral and burial or cremation costs and will ensure that your family isn’t left to worry about coming up with the money while they are grieving.
What happens to my term life insurance policy at the end of the term?
When your term life insurance policy expires, you need to decide if you need coverage for an additional length of time or not.
By now, you’re older, so your premiums will cost more, but you can still opt for another term policy, choose a permanent life policy, or if your current term policy allows, convert it to a permanent policy.
Ideally, when you buy coverage, you will choose a term length that will provide coverage until you have enough savings or investments that your dependents will be okay without your income. For someone with, or planning on, a family, buying a 25- or 30-year term policy at age 25 will cover you during the years your partner and kids are most reliant on your income. By the time you’re 55, your kids are now young adults and no longer dependent on your financial support.
You can find out just how affordable life insurance is with Insurify’s comparison tool. In less time than it takes to order pizza, you can have a list of a dozen quotes from companies that will insure you.
