When you’re in your 20s, life insurance is unlikely to be the first thing on your mind. After all, you’re young and likely to be healthy. Currently, only 34% of Americans between 18 and 24 years old report having life insurance.
However, there are several valid reasons to consider purchasing a universal life insurance policy at this stage in life. For example, if you’re starting a business, getting married, or having children, life insurance can provide financial protection and stability should something unforeseen happen to you.
Let’s focus on what to take into account when making this decision.
What is Universal Life Insurance?
Universal life insurance (UL) is a type of permanent life insurance that combines an investment savings element with flexible premiums and loan options. It provides lifelong coverage and builds cash value over time.
This cash value allows you to borrow against your policy or withdraw money from it when needed. You can use this money to pay off debt, fund college tuition or increase your retirement savings.
Additionally, universal life insurance offers flexibility when it comes to premium payments. You can pay more than the minimum required each month, increasing your cash value and death benefits amounts over time. Alternatively, you can opt for lower premiums when needed by reducing your coverage amount or changing your payment frequency.
Why Should Young People Consider Life Insurance?
Many young people typically don’t like the idea of taking out a life insurance policy because, at their age, they don’t want to think about the event of an untimely death.
However, while this event is highly unlikely, the probability is not zero. Being covered by a life insurance policy can at least provide financial security and relief for your relatives in the event of an unexpected death, as well as help them cover the cost of funeral expenses or any outstanding debts. If you’re married or have dependents, life insurance can also help cover any lost income should you pass away.
On top of that, a life insurance policy can be used as an investment vehicle, allowing you to build up cash value over time and use it for major purchases or additional savings.
Finally, life insurance premiums tend to be more affordable the younger you are, meaning you can lock in these low rates for a lifetime of coverage.
What are the Differences Between Universal and Whole Life
Whole life insurance is another type of permanent life insurance. In this case, premiums are fixed and guaranteed never to rise.
The primary difference between whole and universal life insurance is the rigidity of the policy. Once a whole life insurance policy is issued, the coverage amount, premium payments, and death benefit are set in stone. In contrast, a universal life policy gives you more freedom to make changes if necessary, as you can adjust premiums or death benefits without starting from scratch with a new policy.
Which Policy is More Attractive to Young People?
Its flexibility is one of the primary reasons why young people may find a universal life insurance policy more attractive. It allows you to adjust your coverage amount and premium payments over time to meet your changing life circumstances.
Additionally, the investment aspect of universal life insurance can be beneficial to someone in their 20s. Since this policy builds cash value over time, it can become a valuable asset in your retirement portfolio.
Is Life Insurance More Expensive for Young Adults?
Many young people know that the average monthly car insurance cost tends to be higher for them compared to older adults. They may mistakenly think that this is the case for life insurance too.
However, the opposite is true for life insurance. Since life insurance companies base premiums on mortality risk, young people tend to pay less because they are generally in good health and have a greater life expectancy than older adults.
This means that the earlier you start, the more money you can save over time by locking in your lower premiums for the duration of your policy.
Another factor that makes life insurance more affordable for young adults is that they often don’t need as much coverage as older individuals. Since they typically don’t have dependents or other financial obligations yet, they can get away with purchasing smaller policies that provide enough coverage without breaking the bank.
Take Life Insurance Seriously
Young people should not avoid the topic of taking out a life insurance policy and focus on its benefits. These include financial security for loved ones in the event of an unexpected death, lost income replacement should you pass away, and a way to accumulate cash value over time.
Universal life insurance tends to be more attractive to young people due to its flexibility and investment potential. Additionally, life insurance premiums are typically cheaper for more youthful individuals as they pose less mortality risk.
For these reasons, young adults should consider taking out a life insurance policy as soon as possible to lock in the lowest rates for years to come.
This information is provided for educational purposes only and does not constitute professional financial advice. Please always seek qualified financial or legal counsel before making decisions regarding your finances.