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Should I Get Life Insurance in My 20s?

Life insurance may be the furthest thing from your mind when you're in your 20s, and just figuring out the day-by-day and the distant future is not a priority. Buying life insurance may not be on the to-do list of most people in their 20s, but buying it at a young age may pay off in the long run.

Life insurance for young adults

The subject of life insurance in your 20s, for some, is a matter of low significance; when you are entering the first chapters in your book of life, the end for many is unforeseeable. However, life insurance can be a financial safeguard for your endeavors and a liquid asset to your loved ones upon your passing. Getting life insurance in your 20s is a practical choice for numerous reasons. Premiums are less expensive, coverage may be quicker and easier to obtain, and interest on permanent life insurance premiums amass sooner.

No matter what type of life insurance policy you purchase, the healthier you are, and the longer you live, the less expensive premiums will be. Life insurance premiums reflect the risk the insured is to the life insurance company. The more the chances are that the insured will pass away, or the higher the insured's mortality, the higher the premiums will be. Factors that insurers consider when evaluating risk include age, health, medical history, gender, and lifestyle choices like smoking and dangerous occupations.

The longer the insured has to pay premiums, the less expensive they are because the insurer expects the policyholder to pay premiums for longer.

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Other factors that influence premiums

Other factors that affect the cost of premiums include:

  • The type of policy you buy. Permanent life insurance policies draw interest on some of the premiums, so they are usually more expensive than term life insurance policies. Term life insurance lasts for a selected amount of time and expires. Most policies may be renewed with a moderate premium increase.
  • How much coverage you purchase. The higher the face amount the more you will pay in premiums.

Accelerated underwriting

Getting life insurance when you are a young adult may be quicker and easier than when you are older. Life insurance underwriting is when insurers determine if they should approve or deny an application. It could take up to six weeks for an insurer to decide on your application. Accelerated underwriting is a more straightforward application process, speeding up the process. A fully underwritten life insurance policy usually requires a medical exam or report from an attending physician. Accelerated underwriting only requires a medical survey and the application.

To qualify for accelerated underwriting, you must usually be between the ages of 18 and 60, in good health, and without a family history of medical conditions. Life insurance applicants in their 20s are good candidates for approval as they are more likely not to have had serious illnesses and are in good health. Due to those factors, a young adult's life insurance policy is also more likely to be approved.

Can you use life insurance while alive?

  • Permanent life insurance policies offer living benefits in cash value, designed to be used while alive, and may be borrowed against or withdrawn.
  • Traditional permanent life, called whole life insurance, offers guaranteed cash value and death benefits.

A portion of premiums paid are placed in an interest-bearing account and grow moderately, usually around two percent. After the policyholder pays enough premiums, the cash value may be borrowed. Buying life insurance in your 20s puts you in a good position to use the living benefits of traditional whole life insurance policies earlier and accumulate more cash value.

One of the ways permanent life insurance policies are separated is by how they accumulate cash value. Universal and variable life are permanent policies that can grow cash value faster.

Universal and variable life insurance cash value

  • Universal life insurance policies place premiums in investment accounts that may offer a greater return. Universal life provides a minimum interest rate and current market rates. These policies offer flexibility. Policyholders can increase or reduce premiums and the death benefit.
  • Variable life insurance is both life insurance and security. Premiums are invested in investment sub-accounts that the policyholder chooses and owns. Variable life insurance offers a guaranteed death benefit; however, cash value and the death benefit rise and fall with market rates, and the cash value is not guaranteed.

Variable universal life combines attributes of variable and universal life insurance. Premiums and death benefits are flexible, like universal life insurance. And, like variable life insurance premiums, they are invested in sub-accounts owned by the policyholder, which is also a security.

Long term care benefits

Permanent policies may also offer an accelerated death benefit. An accelerated death benefit pays out all or a portion of the policy's death benefit if the insured is diagnosed with a terminal illness or suffers from a permanent disability that requires long-term care.

Benefits of buying life insurance in your 20s

As mentioned, life insurance costs are more affordable the longer the insurance company expects you to pay premiums. Because you are more likely to develop a serious illness later in life than earlier, people in their 20s are more likely to be approved than if they wait until they are older and may suffer from health conditions.

Permanent insurance offers cash value that may accumulate based on market conditions and at a guaranteed rate and may be borrowed against or withdrawn at the policyholder's discretion. The longer you have the policy, the more the guaranteed interest grows.

Life insurance policies may also be a useful financial tool for those in their 20s if they have debt or are starting or have a business, and most traditionally, for survivor protection.

  • Debt protection. Decreasing term life insurance is a term life policy designed to ensure that significant expenses, such as student loans, may be paid in the event of the insured's passing. The premiums decrease as the loan does, and the policy expires when the debt is paid.
  • Business loans and business continuation. If starting your own business, life insurance helps to ensure that business loans are covered, and your business partners can continue the business if they suffer a financial loss if you pass away.
  • Survivor protection. If you have dependents or are planning on starting a family, life insurance is a way to ensure your family is financially protected if you pass away. Life insurance policy beneficiaries benefit from the liquidity of the policy's benefit amount. It provides peace of mind that those closest won't have to worry about how household bills will be covered due to losing a breadwinner's income.

Although most people in their 20s have a long life ahead, thinking ahead is a good idea. Life insurance policies can provide financial security while living, giving peace of mind about what lies ahead. Tell us about your experiences in the comments, and keep yourself in the know on life insurance here at Healthnews.


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