Apr 13, 2021 10:44 AM EDT
Do I Need Life Insurance if I'm a Millennial?
Millennials are infamous for many things, some of them fair, some of them less so. A generation perhaps best known for their financial woes, people within this cohort, which includes people born 1981 to 1996, inherited a sluggish economy with stagnant wages and more student debt than any generation before them.
But with many millennials in their 30's and nearing their 40's, many have overcome these circumstances using other generational markers, like the access to technology, to overcome these challenges, in addition to using tried-and-true strategies like investing in life insurance.
If you're a millennial and are unsure of if life insurance is a good idea for you right now, use this guide to help walk you through your decision.
Life Insurance for Millennials
A 2018 study by New York Life found that only 10% of millennials have the amount of life insurance coverage they need. While it's always hard to determine the direct cause of trends like this, there are still some known correlations.
First, while millennials as a generation are solidly in their adult life, most are still young enough that preparing for their death may not be at the forefront of their worries. Second, millennials have competing financial priorities.
There's some debate as to whether it's that millennials prioritize more short-term financial needs, or millennials are simply spread too thin financially to take care of their needs the same way generations before them did.
Regardless, millennials tend to have less disposable income than the generations before them.
That being said, life insurance doesn't have to be something that makes or breaks your budget each month. The same study mentioned above found that many millennials overestimate how much life insurance actually costs.
It's definitely worth looking into as spending a few extra bucks now can save your loved ones from financial worry later.
What is life insurance?
Life insurance is exactly what it sounds like - insurance for your life that will pay out in the event you pass away. While this may sound morbid, it's really not; it's just practical. If you have a family, or plan to, life insurance will guarantee their financial security, even after you lose your income.
In technical terms, life insurance is simply a contract between you and your insurance provider. On your end, you'll pay a monthly premium. On their end, they'll pay an agreed-upon sum in the event of your death, providing one less thing for your loved ones to worry about during a trying time.
Term Life Insurance vs. Whole Life Insurance
Term life insurance is insurance you purchase for a certain term that will expire at the end of said term. Term life insurance appeals to many because it often comes with cheaper premiums. It's a popular choice, as some people don't expect to need the financial safety net that life insurance provides in their later years.
For example, if you buy life insurance in your late 30's or 40's for a thirty year term, you may have accumulated enough wealth in your 60's and beyond to not need life insurance. That being said, if your coverage runs out in your 60's and you DO need more coverage, you may find that starting a new plan later on in life is too expensive.
Whole life insurance is often more expensive and more laborious to sign up for. Not only is it permanent life insurance, it has its own cash value and can act as an investment. In fact, many people choose whole life insurance specifically as part of their investment strategy. As you pay your monthly premiums each month, you pay into the policy, which gains value.
Because whole life insurance lasts for the entire term of your life, you don't have to worry about coverage lapsing and having to pay more for a plan later down the road. It's a cost versus reward decision.
If you think you will need a financial safety net in the later years of your life, whole life insurance might be a solid investment now.
When do I need life insurance?
The best answer for when you should buy life insurance is now - or at least now is the time to start thinking about it. While you need to assess how much coverage you need and what can fit into your budget, it's never too early to start considering if life insurance makes sense for you.
If you're in your early 20's, it may not seem as important to invest in life insurance now. But it's also not a bad idea, especially if you're starting to consider how the next 10 years will look. Do you plan on buying a house or starting a family? If so, you'll want to look into ensuring your family's security when it comes to serious financial obligations.
If you're in your late 20's, early 30's or beyond, it might be the right time to start sourcing whole or term life insurance. Much like some health insurance, life insurance may be more expensive to sign-up for if you're in poor health, so the best time to get it might be when you're not thinking about it.
Step-by-Step Guide to Choosing Life Insurance
Choosing life insurance can be a daunting task, but these simple steps can help clarify the process for you.
Step 1 - Decide What Kind of Life Insurance You Want
Now that you know the difference between whole and term life insurance, choose which option works best for you.
You may want to compare a few quotes across varying types of life insurance, including term, whole and accidental death and dismemberment insurance. Dismemberment insurance may be the best type of insurance for those who work in high risk industries, as it prevents you from paying the higher premiums if you're at a higher risk of death than the average person.
This will help you determine which kind of insurance you want or need. Also, consider your long-term financial plan. Whole life insurance as part of your investment strategy is a relatively risk-free way to add to your nest egg.
Step 2 - Calculate How Much Coverage You Need
Most insurance companies recommend calculating your ideal coverage amount by multiplying your annual salary by 10 to 15. The resulting number is your lifetime coverage, which will determine how much you're paying your premium.
Step 3 - Pick the Length of Your Policy
If you choose whole life insurance, then your term is set for the duration of your life unless you choose to terminate your policy. Be sure to consult with your provider before you do this, as it may have unintended financial consequences.
But if you choose term life insurance, there are several factors to consider when choosing the term.
How long do you need a financial safety net? If you think you'll have a fair amount of wealth accumulated by a certain point, it may be smart to pick a coverage term that ends by that point. But if you worry you'll be financially insecure later in life or don't want to take any chances, go for a longer policy.
Step 4 - Compare Quotes from Various Providers
Once you have all the above information, it's time to compare quotes from multiple providers.
Using a quote comparison service can help streamline this process, allowing you to compare multiple options side-by-side and helping you make only the most informed decisions in your search.
Step 5 - Apply for life insurance and follow your provider's chosen instructions to complete your plan purchase
Once you've picked a company, it's time to apply! Different providers have different processes, of course, so follow their directions to complete your application.
Some may require a check-up with a doctor to determine your eligibility and coverage.
Take Care of Your Financial Future Now
There's no perfect time to start thinking about life insurance, but you can't go wrong with the present. Even if you're young, investing in life insurance now can save you a lot of trouble in the future.
Not only will it protect your loved ones from financial hardship in the sudden absence of your income, it can also be used as an investment product to grow your wealth and save you from prohibitively high premiums that may come with older age or worsening health.
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