The optimal age for purchasing life insurance is technically right after birth. Life insurance is age-banded, which means that as each year passes, the policy becomes more expensive.

However, younger people tend to put off buying life insurance in the face of other debt, like mortgages and car payments. Additionally, current demographics have skewed life insurance buyers older, with millennials staying single or at least delaying marriage for longer than previous generations, as well as having more debt and less income than their parents. 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. A parent or relative may even opt to purchase life insurance for a newborn.

Life insurance cash values grow tax-deferred. Premium contributions to whole life policies purchased at early ages can accumulate considerable value over long-term time horizons, as the cost of insurance is fixed for the entire term of the policy. Cash values can be used as a down payment for a first home purchase. If held long enough, accumulations may supplement retirement income. However, the primary function of personal life insurance revolves around two major categories: income and debt.

Key Takeaways

  • The sooner you purchase life insurance, the better, as it becomes more expensive with each passing year.
  • A parent or relative can buy life insurance for a minor, purchasing a whole life insurance policy with a lump sum; more often adults buy life insurance for themselves.
  • The optimal age to purchase life insurance is under 35, but few people in that age group are able to afford life insurance.
  • Roughly 57% of Americans have life insurance and more than half of them are 45 or older.

Life Insurance and Debt

A college graduate entering the workforce may, in the absence of savings, obtain a credit card to fund relocation or housing costs. The acquisition of unsecured debt immediately places a burden on the debtor's estate, as card balances require payment upon the death of the holder. Ideally, the 22- to 23-year-old graduate purchases a life insurance policy to cover the debt assumed. However, most individuals under age 25 are more concerned with paying current bills than acquiring additional ones.

While the optimal age to purchase life insurance is under 35, Millennials are the least likely to purchase a policy. In 2015, individuals between 18 and 35 overestimated the cost of a policy by 213%. Among the 57% of U.S. citizens who own life insurance, more than half of those policyholders are 45 or older. With marital rates decreasing 21% from 1960 to 2010, life policy purchases are being delayed despite the inherent advantages of buying at a younger age.

A whole life insurance policy can be prepaid via a lump sum for an infant or minor. 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.

Life Insurance and Income

Fewer people are tying the knot, and the number of dual-income households has more than doubled from 1960 through 2012. More than 60% of U.S. households contained two wage earners in 2012, a 35% increase from 1960. With life insurance existing to protect households from the death of a breadwinner, direct written life premium has nevertheless remained flat between 2012 and 2014. Roughly 43% of Americans don’t own life insurance. Among that population, more than half of them say that payments for conveniences such as cell phones, cable and internet service take precedence over prospective life insurance premiums.

Roughly 43% of Americans don't have life insurance, with monthly life premiums taking a backseat to retirement savings, mortgage payments, and other necessities—as well as conveniences like mobile phones and wifi service.

Cost of Waiting

Forgoing life insurance purchases at a young age can be costly over the long term. The average cost of a 30-year level term policy with a $100,000 face amount is about $156 per year for a healthy 30-year-old male. By contrast, the annual premium for a 40-year-old male is about $216. The overall cost of delaying the purchase for 10 years sits at $1,800 over the life of the policy.

Additionally, the cost of 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.