Think you’re too young for life insurance? Probably not.
Here’s the truth: With very few exceptions, the younger you are when you buy a life insurance policy, the less you’ll pay.
Although hundreds of factors determine life insurance premiums, age is one of the most critical components, and it makes a strong case for buying life insurance as early in life as possible. Let’s discuss the benefits of buying life insurance at a young age.
1. Life insurance gets more expensive as you get older
Life insurance gets more expensive as you get older. In fact, possibly the only reason that you might be able to purchase life insurance for a lower premium when you’re older is if you quit smoking or using other nicotine products. (Tobacco or nicotine use can make the cost of life insurance up to 10x more expensive!)
Otherwise, the cost of life insurance increases with age. It’s morbid, but life insurance companies simply look at an applicant and estimate how likely the applicant is to die within the policy term (how long the policy is in force).
A life insurance company’s revenue is based upon the premiums collected from every customer minus the death benefits paid out within that group. So the critical job of a life insurance company then is to minimize the likelihood of an early payout in each policy that they approve.
This is important in regard to both whole life and term life insurance policies, but even more in the case of term life policies.
Term life policies have limited time periods (for example, 30 years). So the obvious preference by the life insurance company is that you won’t die before the term expires. In that case, no death benefit will ever be paid out, and the premiums collected largely represent profit to the company.
That brings us back to the age factor, and why it’s a major component in the determination as to whether or not to approve a policy, and at what rate. The younger you are when you apply for a life insurance policy, the less likely it is that the company will ever have to pay a claim. That’s the goal.
As a result, life insurance premiums are generally considerably lower the younger that you are at the time of application. Premiums will typically rise with age since the company has to adjust for the higher risk of death that increased age brings. However, your health will also play an important role in calculating premiums or becoming approved for a policy at any age.
2. Life insurance is cheaper when you’re healthy
If there’s one factor that’s more important than age in determining an applicant’s life insurance risk, it’s health. Statistically speaking, a person who is in excellent health is considerably less likely to see an early death than one who is in poor health. This is why life insurance companies pay particular attention to your medical history when underwriting a policy and why life insurance premiums for smokers can be 10 times the premiums for non-smokers.
But even your health is at least loosely related to your age. Since most diseases and impairments tend to develop later in life—typically more toward middle age—excellent health and youth are closely connected.
At least part of the reason why you should get life insurance when you are very young is so that you can get it before any chronic health conditions develop. Unfortunately, many health conditions can make it difficult or impossible to get life insurance at all.
For most people, the ideal time to buy life insurance is when you’re in your twenties.
Though that may seem young, chronic conditions like high blood pressure and cholesterol often begin to show up after age 30. If you can get your life insurance policy before any of these conditions develop, you’ll pay substantially less in premiums.
3. You can get discounts on life insurance for being active
Some life insurance companies will give you discounts on your life insurance based on running, swimming, keeping a vegetarian diet, etc.
Although we all hope to continue such healthy lifestyles well into middle- and old-age, the reality is a lot can come up over the years that makes it harder to stay active. From work demands to kids to injuries, as a rule we’re all a bit more active when we’re young.
4. You don’t need kids to buy life insurance
Most people don’t think about life insurance until they become parents. There’s nothing like the overwhelming sense of responsibly for a newborn human to make you take up the tedious (and morbid) task of shopping for life insurance.
But term life insurance policies can last for up to 30 years, and permanent life insurance policies are designed to last a lifetime. Even if you’re not a parent but purchase a life insurance policy now, it will be there for you if you do decide to have kids.
Never mind the fact that life insurance can provide an important financial safety net for your spouse or partner. (You can make anyone a beneficiary of your life insurance policy, even if you’re not married.)
Life insurance is an obvious choice if your partner doesn’t work and depends on your income, but it can be valuable even if you both work. Increasingly, couples need two incomes to meet their monthly expenses. And a life insurance policy can ensure that your partner doesn’t need to worry about money if you die prematurely.
5. The more you save, the less life insurance you need
The purpose of life insurance is to provide financial security for your partner and/or children in the event you die unexpectedly. But a healthy amount of money in savings or investments can achieve the same goal.
Unless you’re fortunate to start your adult life with a trust fund or inheritance, you’ll spend your twenties somewhat broke and, hopefully, accumulate more and more savings as you get older. As your assets grow, the less life insurance you need. You can see this in action (and find out how much life insurance you need) by using our life insurance need calculator.
It’s yet another reason to buy life insurance when you’re in your twenties or early thirties as opposed to waiting until you get older.
What’s the cost of waiting to buy life insurance?
This is perhaps best demonstrated by an example. For this purpose, we’re going to ignore health as a factor in premium costs, and focus mainly on age.
Let’s say that you are 25 years old, single, childless, and in excellent health. Given that profile, you can purchase a 30-year term life insurance policy with a death benefit of $500,000, which will be about enough to cover the average young family. The premium for this policy will be $74 per month, or about $888 per year.
Now let’s assume that you decide to wait to purchase life insurance until you are married and have children, at about age 35. The cost for the same 30-year term policy for $500,000 will increase to $115 per month, or about $1,380 per year. That’s an increase in the premium of more than 50 percent! Worse, it will come at a time when you have family obligations, and extra cash will be short.
You may be able to work around this problem by reducing the term of the policy down to 20 years. At age 35, a 20 year term policy for $500,000 will be $76 per month, or about $912 per year. That will keep the premium about identical to what you could have gotten 10 years earlier, however it will reduce the term of the coverage by a full decade.
The fact that the 20-year policy taken at age 35 is just about the same as the 30-year policy taken at age 25 is not a coincidence. In each case, the term of the policy will expire at age 55. That means that the risk between the two policies is just about equal. The only difference—causing a small increase in the premium at 35—will be the fact that you’re 10 years older. That does carry a slight risk of early death, certainly more so than it would at age 25.
» MORE: Best life insurance companies for young adults
Summary
The older you are, the more life insurance costs. It’s as simple as that.
It will be less expensive to purchase life insurance now, while you are young and in excellent health, than it may be a few years down the road when you have a family to care for.
