The right time to buy life insurance varies from person to person, depending on family and financial circumstances. Generally, you need life insurance if other people depend on your income, or if you have debt that will carry on after your death. After all, you don't want to leave your loved ones without money to live on... or on the hook for your credit card debt.
- If others depend on you financially—or you have debt—it's crucial to have life insurance.
- The sooner you purchase life insurance, the better, as it becomes more expensive with each passing year.
- Permanent life insurance has a cash value component. Holding the policy for longer lets that cash value grow over time.
Why Younger Is Better
When it comes to timing, the younger you are when you buy life insurance, the better. This is because at a younger age, you'll qualify for lower premiums. And as you get older, you could develop health problems that make insurance more expensive or even disqualify you from purchasing a plan.
However, younger people faced with mortgages, car payments, and student loan debt tend to put off buying life insurance. While paying off current debt is critical, missing out on buying life insurance at a young age has a significant economic impact, much like delaying saving for retirement. The sooner it is purchased, the better.
The Ideal Age to Have Term Insurance
Term life insurance covers you for the term of the policy. While younger is generally better, when that term should start may also be based on when you anticipate other people depending on your income. You'll want the term of the policy to last as long as your dependents will need your income. For parents, this is often until their children are grown. People in couples who own property together may want to be covered until their mortgage is paid off. If both people in a couple are earning income that is crucial to the family, then each should be covered. Parents who don't earn income may also want to consider coverage, as their unpaid labor (childcare, etc.) might need to be replaced by paid services (like daycare) in the event of their death.
Life insurance may be prudent even before you have dependents if you have unsecured debt, such as credit card debt or some private student loans. (Credit card balances require payment upon the death of the holder.)
When to Buy Permanent Life Insurance
With a permanent life insurance plan, the cash value grows tax-deferred. Premium contributions to whole life policies purchased at an early age can accumulate considerable value over the long-term time, as the cost of insurance is fixed for the entire term of the policy. Cash value can even be used as a down payment for a first home purchase. If held long enough, what you accumulate may be able to supplement retirement income. However, the money needs time to grow, which is why an early start is best.
A whole life insurance policy can be prepaid via a lump sum for a minor (even an infant!). When the minor turns 18, the policy can be transferred to the insured, at which point the policy can be funded further, or cashed in if it holds any equity.
Regardless of which type of policy is right for your circumstances, make sure to thoroughly research the companies you're considering working with to get the best life insurance policy possible.
Cost of Waiting
Forgoing life insurance purchases at a young age can be costly. The average cost of a 20-year level term policy with a $250,000 face amount is about $214 per year for a healthy 30-year-old male. In contrast, the annual premium for a 40-year-old male is about $486. The overall cost of delaying the purchase for 10 years is $2,720 over the life of the policy.
Additionally, waiting to purchase life insurance can have a greater impact on an attempt to purchase a policy. Medical conditions are more likely to develop as an individual grows older. If a serious medical condition arises, a policy can be rated by the life underwriter, which could lead to higher premium payments or the possibility that the application for coverage can be declined outright.