Life Insurance 101: A Guide for Millennials
Life insurance is invaluable, offering financial and emotional support to the beneficiaries. It caters to funeral expenses and provides a monetary safety net for your dependents, replacing lost income and paying off debt and medical bills for end-of-life care. With a life insurance policy, you have peace of mind since your loved ones will have living expenses when you are gone.
Although life insurance is crucial, most millennials –aged 27 to 42 underestimate its value. Research shows that 55% of millennials don't have life insurance, increasing the likelihood of their loved ones experiencing financial hardship should they pass away unexpectedly.
Millennials are at a prime life stage for life insurance because most are married and have dependent kids. As such, they should consider life insurance to protect their loved ones and as part of their financial plan. Read on to learn more about millennials' life insurance.
Do Millennials Need Life Insurance?
If the financial stability of your loved ones can be disrupted if something happens to you, then yes, you need life insurance. Life insurance for millennials offers a policyholder’s dependents a predetermined sum when the insured dies in return for regular premiums over a certain duration. This guarantees your kids, parents, or spouse financial security during this hard time.
Here are some of the reasons you need life insurance as a millennial:
- It's cheaper: Age and health affect your life insurance premiums. A young and healthy person is more likely to get a reasonable rate than an older one since they pose less risk to the insurer.
- It pays funeral expenses. According to Forbes, the national median cost for a funeral is $8,000
- Avoid passing debt to loved ones: Did you know 72% of millennials have $117,000 in non-mortgage debt? Life insurance helps clear your debts so your dependents are not overburdened, especially co-signers for mortgages, loans, and credit cards.
- Protect dependents: Even people who don't have kids may have spouses, siblings, or parents depending on them. As such, life insurance offers financial security to them.
- A life insurance policy can supplement the employer one and comes in handy when you change jobs, get laid off, or the employer goes out of business.
When Should You Purchase Life Insurance?
The simple answer is as soon as possible. Nonetheless, millennials' need for life insurance increases as they accomplish main life milestones such as getting married and having kids.
Single millennials in their twenties may wonder whether they need life insurance. If you have no debt, you may skip on insurance till later. However, those with debt, especially student loans co-signed with parents, should consider purchasing life insurance to cover the debt repayment in their absence.
Similarly, life insurance is vital for younger millennials who support family members like parents, siblings, and grandparents.
Marriage prompts hard financial conversations, including life insurance. The policy is a good bet for partners who are breadwinners and those who have accumulated debts jointly. Couples with plans of having kids can purchase a policy early in preparedness and enjoy affordable rates and low premiums. Life insurance is necessary for millennials with kids to handle family expenses should something happen to them.
Which Policy Should You Buy?
With many types of life insurance for millennials, it can be daunting to determine the best one for your unique needs and financial situation. Subsequently, it's fundamental to familiarize yourself with the available policies to make an informed decision.
There are two types of life insurance, namely term and permanent.
Term Life Insurance
As the name implies, term life insurance lets you purchase life insurance for a specific duration, typically ten to thirty years. It is an easy, flexible, and cost-effective option since you determine the coverage amount and policy length.
Term life insurance is affordable, and you pay far less than you would on a permanent policy with similar death benefit amounts. You pay monthly or annual premiums to keep the policy active. If the policy expires due to late payment, you are not covered; thus, the insurance won't pay anything upon your demise.
This insurance policy suits millennials who want to shield themselves against short-term risks such as passing on during working years, especially for breadwinners.
Permanent Life Insurance
Permanent life insurance covers millennials throughout their lives. You can opt for universal life, whole life, or variable life insurance with different conditions and perks. Although permanent life insurance is costlier than term life insurance, it has extra perks, such as building cash value and dividends.
How Much Life Insurance Should You Purchase?
The worth of the insurance to buy depends on the risk you want to cover. For instance, do you want the policy to cover your funeral costs, pay off your mortgage, or cater to your kids' college education? A 28-year-old millennial with two kids will need more life insurance than a 40-year-old with no spouse, kids, or other dependents.
Most life insurance policies provide $250,000 to $1 million coverage. You can determine the best coverage by determining the risk you want to shield. The premium depends on age, gender, health status, policy type, death benefit amount, and riders.
Conclusion
Death is the last thing you think about in your 20s or even anytime. However, it is inevitable, and life insurance provides a financial safety net for loved ones and emotional benefits to you should you die.
The best life insurance for millennials depends on your financial situation, upcoming life changes, and financial goals. Keep your loved ones afloat should the unexpected happen with a solid life insurance policy.
