Why Millennials Need to Start Thinking About Life Insurance Now
Not only is life insurance is far cheaper when you're younger—it can also be a great way to accumulate wealth for retirement.
During my "invincible" young adulthood, life insurance was the furthest thing from my mind. Not only was I confident that the need for such a policy was a long way off, but I was also clueless about the many savings and investment benefits that can often be derived from certain types of policies.
Fast-forward more years than I care to reveal with any specificity, and I've learned the costly error of my earlier thinking the hard way. For a variety of reasons, obtaining a life insurance policy at this point would be a seriously pricey endeavor, one I simply can't afford. Which is why I've set out to help others avoid a similar mistake. Millennials, in particular, should take heed.
While COVID-19 has raised awareness about the important role life insurance plays in families' financial security, new research from LIMRA shows that 42 percent of Americans would face financial hardship within six months if the primary wage-earner were to die unexpectedly. The very same study shows that young Americans are most at risk, as more than half of millennials have no life insurance coverage.
Here are five reasons millennials really need to consider getting life insurance sooner rather than later.
When you’re younger, life insurance policies are cheaper
Let’s start with the most obvious point, one you’ll hear like a steady drumbeat from nearly every life insurance expert or financial advisor: The earlier you get a life insurance policy, the more affordable it will be.
“Life insurance is cheaper and easier to get while you are young and healthy,” says Micah Metcalf, owner of Metcalf Financial, a fully digital insurance agency. “As you age, your health tends to age too, potentially bringing a whole host of medical complications that you may have never even thought about in your 20s. Things such as diabetes, depression, or arthritis can all bring about more difficulty with obtaining life insurance, which can make it much more expensive.”
To drive this point home, Metcalf rolls out the following dollars-and-cents example. If a healthy 25-year-old male were to obtain term life insurance right now, the monthly cost would be a mere $30. This is based on quotes from such companies as AIG, Protective, and Banner William Penn. However, if a 45-year-old were to seek coverage, those monthly premium costs are more than five times higher, ranging from $164 to $169 per month from the same insurance companies quoted for the 25-year-old.
While we’re on the topic of policy cost, it’s also cheaper to get larger policies less expensively when you’re younger, which is not an insignificant consideration.
“You can get more coverage for less,” says Jessica Lepore, the millennial founder of life insurance agency Surevested. “Larger policies are much cheaper to pursue when you are younger. Although you might not think that a $1 million life insurance policy is necessary when you live alone in your New York City studio apartment, think five, 10, 20 and even 30 years down the line. Your needs will for sure change by that point, and by pursuing coverage while you’re young, you will be saving much more money than if you waited until later in life to start coverage.”
Policies are also easier to obtain when you’re younger
Another important point while youth is on your side: When you’re young and healthy, life insurance policies are easier to qualify for (in addition to being a bargain). The flip side of this coin is that when you’re older and saddled with health challenges, you may not qualify at all—or it may cost a small fortune to secure a policy because of any significant health conditions you may have developed. And this is no small concern even among millennials because a recent Harris Poll found that 44 percent of older millennials already have chronic health conditions.
“In many cases, when you’re young, you may be able to get a policy without even having to undergo a medical exam. As you get older, this may no longer be the case. Life insurance companies may require you to undergo an exam, blood work, or even request up to five years of your medical records just to get approved,” says Metcalf.
As an added bonus, when you obtain coverage younger, before being hit by any serious health issues, the policy is often guaranteed from that point forward. Meaning, if you develop health conditions later in life, you need not fret about being unable to obtain life insurance, because you already have a policy.
“Some policies are guaranteed to be renewable at the end of the term, so if you get in now you don't have to worry about qualifying later if a medical condition develops,” says Derek Szeto, co-founder of Delaware-based Walnut Insurance.
Student debt galore
Raise your hand if you have student debt. Chances are, that hand is in the air right now, because as of the second quarter of the 2019 fiscal year, for borrowers ages 25 to 34—a significant share of the millennial population—there was $497.6 billion dollars in outstanding student loan debt, according to New America. Furthermore, a recent Harris Poll found that a majority, (68 percent) of older millennials are still paying down their student debt a decade or so later. Now, who will be charged with paying off that debt if something were to happen to you?
“Unfortunately, when we pass away, our debts don't always go with us,” says Lepore, of Surevested. “Even if you're not someone with a family or mortgage, you might have other debts like student loans. By taking out even a small life insurance policy when you're young, you can ensure your family won't be left with the burden of paying those debts back if something were to happen to you.”
And while we’re headed down this road, do you happen to have a co-signer on that student debt? All the more reason you should be thinking about these issues.
“If you had a co-signer on your student loans, that person could still be responsible for your debt even if you passed away,” explains Allison Kade, millennial money expert from the digital life insurance company Fabric. “If you want to make sure that your parents or other co-signers aren’t stuck single-handedly paying off your debt in your absence, you could get a life insurance policy that would give them money to pay off your loans.”
Now put your phone and Slack messages on "do not disturb" and spend some time with this next point, so that you can fully absorb it: One of the least understood and most valuable benefits of life insurance is that it can be used as a lucrative investment vehicle to build significant cash value over the course of your lifetime. This is particularly important if you’re behind on saving for retirement.
Cash value life insurance, also referred to as permanent life, provides a death benefit and can be used to build cash (as opposed to term life insurance, which does not offer the cash value component). The money you put into these policies can be used to develop an investment portfolio that helps you accumulate wealth. And as you age, the cash in the policy can be tapped to cover retirement living expenses.
And here’s perhaps the best part: You’re accumulating wealth tax-free.
“This is the most misunderstood and overlooked benefit of permanent life insurance by the average consumer,” says Brian Carlson, a certified financial professional and vice president of wealth management with GCG Financial. “If utilized properly, a permanent life insurance policy can provide a tremendous value to a person’s long-term savings goals. The concept of FIRE (Financial Independence Retire Early) is hot amongst millennials, and the usage of a permanent life insurance policy fits perfectly into the FIRE strategy due to the ability to remove funds without taxes or penalties prior to age 59 and a half. Permanent life insurance policies have a tremendous benefit, in the form of cash value.”
A permanent policy provides the ability for the policy owner to grow funds on a tax-advantaged basis and remove funds in the future without incurring any taxes if removed properly, explains Carlson. But, like retirement accounts, the sooner you start contributing, the greater the account value will grow to be as you age.
As independent life insurance agent Susana Zinn explains, most millennials do not have a financial plan that's robust enough to successfully cover their retirement. A life insurance policy can correct that shortfall.
“Seventy-one percent of millennials don’t think they will have saved enough at 65 to meet their retirement needs,” says Zinn. “And according to the National Institute of Retirement Security, 66 percent of working millennials have nothing saved for retirement. Instead, they’re busy paying down debt and covering their general living expenses, while saving for retirement is pushed to the bottom of their priority list.”
At the risk of beating a dead horse, life insurance can help you as a millennial ensure a financially healthy retirement.
“With life insurance, you don’t have to die to use it; you have flexibility with how the money is used, which can help with financial needs for both your planned and your unplanned expenses,” adds Zinn.
OK, you may now return to your regularly scheduled programming.
Protect your business after you’re gone
Actually, one more point. And it should be a point of pride. Millennials are one of the most entrepreneurial generations America has seen in a long time. A recent GoDaddy survey of 3,000 Americans—including 1,000 millennials, 1,000 Gen Xers, and 1,000 baby boomers, found that millennials lead the pack in entrepreneurial efforts, with nearly one in three millennials (30 percent) reported as having a small business or a side hustle. Securing life insurance can be a way to protect this legacy, making sure your business survives long after you’re gone.
If you share your business with another entrepreneur, for example, "that person could use the cash from your life insurance policy as a transition to keeping business flowing in your absence,” says Kade, from Fabric.
The financial burden you would leave behind
If all of the reasons already stated are not convincing enough, ask yourself this one last question: Would anyone have a financial burden if I passed away? No need to tell us the answer, just be sure to heed this final bit of advice.
“If the answer is yes, then you need life insurance protection now, so you won't leave your family with thousands of dollars in lost income or debt,” says Metcalf.