According to a recent study from the Life Insurance Marketing and Research Association (LIMRA),* more than half of all millennials (those between the ages of 25 and 41) have no life insurance coverage at all. More than half!
Why is that? The study says that 35% of millennials don’t own policies because they think life insurance coverage is too expensive, and another 45% think they would not qualify for coverage.
Let’s tackle the “too expensive” concern first. The LIMRA study shows that 8 in 10 millennials overestimate how much life insurance would cost them. What is the actual cost? Typically, under $300 annually.
As far as not qualifying goes, young adults often qualify easily since the younger you are, the less likely you are to have health issues that would preclude coverage. So, what are some things a young professional should consider when buying life insurance?
Term vs. Permanent Coverage
The first decision point is what kind of coverage to get. There are two basic kinds of life insurance coverage – term and permanent (also known as whole life). Both term and permanent/whole life policies pay a benefit to your beneficiaries in the event of your death, but there are important differences between the two types of policies.
Term insurance does not have a cash value and coverage is in place for an established period. Some term policies lock in your premium for 10 to 30 years, while others are renewable annually (usually at progressively higher rates). If you only need coverage until your mortgage is paid off or the kids are in college, then a term policy is probably your best bet because you can get a lot of coverage for a very affordable price.
If you have a permanent need for insurance, then a whole life policy may be a better fit. With a whole life policy, there is a death benefit and a cash value component. Permanent insurance (as the name implies) is in effect from the time you buy the policy until the time you pass away, assuming the required premiums are paid.
It has been my experience that most young professionals are best served by obtaining term insurance. First, they can get a lot of coverage (think $750,000 or $1M plus) for a very manageable price (think less than – and maybe much less than - $1,000 per year). Second, that low premium can be locked in for multiple decades.
Employer Provided vs. Individual Policy
If you decide that term insurance is best for you, the next decision is where to get it from. Most large employers offer life insurance to their full-time employees, and the premium is subtracted from your paycheck. What’s not to love about that? The obvious question is what happens to the coverage if you leave the employer? Usually, the life insurance coverage ends. That could be problematic, especially if you take time off between jobs. Who wants to worry about not having coverage every time you change jobs? Since millennials are more likely to change careers losing life insurance coverage is a real concern.
Instead, you can get your own policy either online or via a low-cost provider. Online calculators can help you determine how much coverage is appropriate, and applicants under age 60 can usually get coverage of up to $750,000 without a medical exam.
When to Purchase
The last decision is when to get coverage. The conventional wisdom is that most people do not need life insurance until or unless another person is financially dependent on them. For example, perhaps you have purchased a home with a partner and that partner could not afford the mortgage on their own. Or you have a few kids, and you want to be sure that they can go to college even if you were to pass early.
But what if you are a single 20 or 30-something millennial with no dependents? Should you consider life insurance in that circumstance? Perhaps yes. Insurance is cheapest and easiest to get when you are young and healthy. As a 25-year-old in excellent health, you could likely get a $750,000 policy with a 25-year or 30-year term for about $400 per year. That coverage level can cover a lot of things – a mortgage, college education or perhaps both.
The life insurance coverage would remain in effect until you are 50 or 55, and the premium will not change during the term period. If you need more coverage later, you can take out another policy. In the meantime, the box is checked on affordable insurance coverage for several decades. Your 45-year-old self will likely thank you for being proactive on this important coverage.
For expert help in making decisions about your life insurance needs, find a CFP® professional on LetsMakeAPlan.org.
*It’s Time to Help Get More Millennials Insured, LIMRA – 2022 Insurance Barometer study
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