Do young people need life insurance?
I’ve heard this question asked more than once, and unfortunately it’s a terrible question. Someone’s age has very little to do with whether or not someone needs life insurance. An 18-year-old might need life insurance more than a 90-year-old, depending on their situations.
However, we can’t neglect the importance of senior life insurance over 90. Both play a vital role in one’s life.
Here is a list of some better questions to ask about life insurance:
What is Life Insurance?
In one sentence, life insurance provides your family with money if you die.
There are many different kinds of life insurance, and there is a great Huffington Post article on Life Insurance 101 that gives you more detailed information.
Does My Family Need Extra Income if I Die?
This is the first, most important question to ask, because this tells you whether or not you actually need life insurance.
Imagine a world without you. Do you even have a family who relies on you for financial support?
If you do, then does your spouse have/make enough money to live without you? If you have kids, can your spouse afford to take care of them without working, or can your spouse afford to pay for a nanny or daycare while he or she works?
If your family doesn’t need any more money when you die, then you don’t need life insurance. On the other hand, if they will need some money then you have to ask yourself the next question.
Can I Afford Life Insurance?
You may decide that you could use some life insurance, but you also might realize that you are drowning in credit card debt, don’t have health insurance, and have $100,000 in student loan debt.
You have to prioritize things financially. If you have kids, life insurance might be the most important thing in your life. On the other hand, if you have a spouse with a steady job and no kids, you might want to focus your money on some other financial priorities.
If you need life insurance and can afford it, the next question is the hardest.
What Kind of Life Insurance is Best?
The best way to pick a life insurance policy is to talk to a financial advisor. Life insurance is complicated stuff. However, the two basic types of life insurance are Term and Cash Value.
Term life insurance is where you set a time period (maybe 20 years) and pay some amount of money each month over that time period. If you die within those 20 years, the insurance company will pay your family some amount.
A Cash Value policy acts kind of like a savings account, which you use to not only pay monthly premiums but also save up for future, more expensive premiums. These can also be used as perfectly legal tax-shelters if you are rich enough and know how to work the system.
Again, these are very basic descriptions and the best way to get the right life insurance is to talk to a professional about it. This is complicated stuff that bloggers like me aren’t qualified to address.
Readers: Do you have a life insurance policy? If so, what kind do you have and why did you pick that one?
Kevin McKee is an entrepreneur, IT guru, and personal finance leader. In addition to his writing, Kevin is the head of IT at Buildingstars, Co-Founder of Padmission, and organizer of Laravel STL. He is also the creator of www.contributetoopensource.com. When he’s not working, Kevin enjoys podcasting about movies and spending time with his wife and four children.
I have a term policy.
The only reason I have this policy is because I’m married, own a home and have a kid on the way. Otherwise my life insurance policy through work would cover anything my wife needs.
Term is best, by far. Cash value policies have so many hidden fees and fake “returns” and are way to complex.
Cash Value sales people will tell you that their policies always beat the market. What they don’t tell you is that they never include dividends in their return analysis.
Any tax benefits you might see from a Cash Value insurance policy are eaten up by fees and commissions.
Bottom line, as with any insurance, you are paying for risk avoidance. Might as well get what you pay for and nothing more. That’s term life insurance.
I have 10 year term life for my wife and me. Although I have no debt except for a small mortgage, I think life insurance is necessary to replace income that the benficiary would lose through death.
My girlfriend would be fine if I died today so I currently don’t have life insurance. Now once we get married and have a kid I wouldn’t go without it. It just matters completely on your situation.
I would probably only get life insurance if I had kids, but something else to consider is if you have a HUGE amount of student loans and one of your parents cosigned, you might want to get a term policy that is enough to cover the cost of the loan if you were to die.
My dad is my cosigner, but at this point I only have about $12,000 left and if I were to meet my untimely demise he would easily be able to pay it off. If I had $50,000, that’d be a different story. I wouldn’t want my parents to have to cough up that kind of money if something happened to me.
Definitely, the younger you are, the lower your chance of death and so the cost for insuring your life is lower. Insurance firms use fatality tables to figure out standard life expectancies and its good to have life insurance as an investment.
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There is a greater need for financing than insurance in our lives. We are life time consumers and everything we do is financed. We pay dearly to use other people’s money (banks, credit cards) or we lose the interest our money could keep earning when we pay cash.
Cash value Life insurance, in particular whole life offers a powerful solution to this predicament of being life time consumers; that is why at any age, specially young age having whole life insurance is important.
For those that promote term life and badmouth whole life, you need to understand that our goal is to design a policy for efficient growth of money not the biggest death benefit we can get the insured for the minimum payment.
By going small on the death benefit we reduce the cost and the policy can sustain itself in a few years.
By switching direction of the money flow, that instead of filling the bank share holder’s pockets, we make those payments to our policies.
We engage in a very powerful process.
So by solving the financing problem using life insurance, we solve the insurance issue.
Definitely, death does not ask for the age. It can happen to any one. its good to have life insurance as an investment for any age group.
If you are young and don’t have any dependents, you really do not have a need for life insurance. But you should look into disability insurance. The odds are greater that you will become disabled, even for a short time, as opposed to passing away when you are young.
well explained about term life insurance policy but the premium is high
I must admit my ignorance on personal finance. It was only recently that I have committed to closely monitor my cash flow to give room for debt payments and savings.
Currently, I have a term life insurance. This is not because I researched and planned for it. It was purely because of peer pressure. Weighing things now, I am glad I did buy it.
Insurance provides a cushion and a sense of peace of mind. Surely, you will not be benefited by it but your family will be. At this point of my life, my family is my life.
Best regards,
Belinda