People in their 20s and 30s may believe that they are too young to need life insurance. In some cases, they may put off purchasing life insurance to pay off other debts. The truth is that buying life insurance young can save you money. Typically, the younger you are when you purchase a policy, the less you will pay in premiums.
Life insurance premiums are considerably lower for people who are younger at the time of application. Age is a major factor affecting the price of life insurance. As a general rule, younger is cheaper.
When considering applicants for life insurance policies, insurers focus on the risk of death of the applicant – when the insured dies, the company has to pay out death benefits. They also focus on the length of time the policy is likely to remain in effect. The longer you hold the policy, the more the insurance company will earn.
Revenue for insurance companies from life insurance policies is based on premiums collected less death benefits paid out for a particular group. Term life insurance policies have limited time periods, such as 30 years. If the policyholder does not die before that term expires, the insurance company will not have to pay out death benefits. This is why age is such a major factor in approving applications and determining life insurance rates. The younger you are when you apply for a policy, the less likely it is that the company will ever have to pay a claim, and the lower your premiums will be.
Youth and health are strong reasons to buy life insurance, as counterintuitive as that may seem. You may even want to purchase a large term policy before you marry and have children. Being young and healthy will keep your premiums low and allow you to buy more insurance coverage than you would be able to buy later when you have dependents. You may have developed some health conditions by the time you are older. The fact is that the cost of a 20 year term life insurance policy purchased at age 35 is approximately the same as a 30 year policy purchased at age 25.
Term life insurance provides coverage for a set term, which may be anywhere from five to 30 years. A term policy pays a death benefit if you die before the term expires. With whole life insurance, you are covered as long as you pay your premiums. It allows you to build cash value that you can borrow against. Premiums will not increase or decrease over time. Term life policies generally have much lower premiums than whole life policies.
Life insurance can be an important part of your financial foundation, and the younger you start, the better. Our experienced agent can offer guidance to help you choose the best type of life insurance and the right policy to suit your needs.