When should I get term life insurance?
You should buy life insurance if life events like parenthood, marriage, homeownership, starting a business, or outstanding loans would leave a financial burden to those you leave behind should something happen to you. Life insurance premiums rise as you age, so purchasing insurance earlier in life can save you money.
Choosing a life insurance policy is a big decision. And like most important decisions, people tend to avoid considering when to buy life term insurance for as long as possible.
Whether it’s a fear of commitment driving that trepidation (just saying, the average age for newlyweds has been trending up for decades) or confusion about the value of life insurance, more and more people are putting off purchasing coverage. Our survey suggests 20% of those that have put off insurance decisions did so because they didn’t understand it.
But is that a risky move? Can you wait too long to buy life insurance? Or is it possible to get coverage too early?
What is term life insurance?
Term life insurance is a type of insurance policy that covers you for a specified length of time, called a term, and pays a death benefit to your beneficiaries if you die, within the term. There are different term lengths (such as 10, 20, 25,30 years or up to age 65) available.
When you buy term life insurance, you choose your coverage amount (the death benefit) and coverage term. Your insurance company determines your premiums based on your coverage amount and coverage term; those premiums stay level through the coverage term.
When is the best time to buy term life insurance?
Conventional wisdom in the insurance industry says that you should get life insurance coverage as early as possible when you’re young and healthy.
Insurance companies offer cheaper quotes to younger people because they carry less risk to insure due to the fact they are less likely to die.
On top of that, most term life insurance policies offer level premiums which means you’ll pay the same amount every month (or another agreed-upon frequency) for the length of your term – even as you age.
This ‘double whammy’ (not an official insurance term) means you can lock into a really low rate for a really long time (potentially 30 plus years). Needless to say, that’s a tempting offer. If your internet provider offered to lock you in at ‘new-customer-pricing’ for the next quarter-century, you’d leap at the opportunity.
Securing a life insurance policy in your early 20s is also recommended because of another common term life insurance feature called guaranteed renewability. This protects you from declined coverage when your term is up for renewal because of any health conditions you may have developed since you first purchased your policy.
For example, let’s say you don’t buy life insurance and you end up with high cholesterol and diabetes at 40 and decide you now want coverage. There’s a chance you’ll get declined by some insurers who will consider you too high a risk. However, if you already purchased a 20-year term policy (with guaranteed renewability) at 20 and developed those same ailments, you’ll be guaranteed the opportunity to renew your coverage This is a great way to hedge your bets against unforeseen circumstances.
Do I really need term life insurance?
When determining your term life insurance needs, there is a lot to consider.
Everyone knows the old saying, “you don’t know what you’ve got ‘til it’s gone,” (thanks Joni – or if you were born in the ’90s, thanks Counting Crows). An equally apt – but way less catchy – expression holds just as true “you don’t think you need things until you really need them.”
If you’re trying to figure out the best time to buy life insurance, ask yourself the following questions:
If you answered yes to any of those questions, take a minute to stop hyperventilating. Ok, you’re good? Now start looking into buying a term life insurance policy.
Term life insurance might seem like an unnecessary expenditure when you’re young and entering the workforce but once that’s no longer the case, the need for it becomes apparent. Life insurance is designed to protect those who are financially dependent on you should you die. Whether that’s your newborn baby, your business partner, or your spouse, they’re the ones hindered by this sudden loss. That’s a big risk to take for those who count on you.
We’re not trying to scare you, but take a minute and think about what would happen if you died tomorrow, strictly from a financial perspective. Can your spouse handle your mortgage payments? Who would pay off your credit cards? Can your business partner keep your company afloat? This can help you figure out if now is the right time to buy a term life insurance policy.
What about others types of insurance?
It’s true, there are also other types of insurance which could better suit your needs like permanent life insurance (which covers you for your whole life and generally has a cash value) or universal life insurance (which is again similar, and has a more involved investment component). While permanent life insurance and other types of coverage can be used to cover big life events and expenses as we mentioned above, they are also commonly used for covering end-of-life expenses and tax planning. While they are useful types of coverage, permanent life insurance and related policies might not suit your current needs. Speaking with a licensed advisor like those at PolicyAdvisor can help you figure out what type of life insurance policy best suits your needs.
How much term life insurance do I need?
If you feel like the people in your life would be in a tough spot without your income, then you’ll probably want to get insured sooner than later regardless of your age. Concerns about premium costs can come secondary to ensuring you’re covered for an appropriate amount to match your financial situation.
To figure out how much life insurance you need, consider any debts you have, how long your loved ones may be financially dependent on your income, what your partner would need to continue their quality of life, and any other obligations you may have, like dependent parents or education costs.
Still not sure how much term life insurance coverage is appropriate? Use our quick and easy life insurance coverage calculator for an honest assessment or read our honest guide to life insurance for answers to many questions that first-time life insurance buyers have.
Timing is everything when buying life insurance
Choosing the right time to purchase life insurance can be frustrating. No one wants to pay for coverage they don’t need, but peace of mind can outweigh the value of a dollar depending on your risk-aversion. Either argument is financially prudent, so it’s natural to feel conflicted.
Ultimately the decision is personal but should be influenced by those who depend on you.
If needing that security is a possibility – whether you’re 22 or 42 – now’s a good time to take cover. But don’t worry, we can help you find the lowest rates for the best coverage using our insurance comparison tool or contact us below.
Did you find this article helpful? Read our next in the series on how much life insurance you need.
The information above is intended for informational purposes only and is based on PolicyAdvisor’s own views, which are subject to change without notice. This content is not intended and should not be construed to constitute financial or legal advice. PolicyAdvisor accepts no responsibility for the outcome of people choosing to act on the information contained on this website. PolicyAdvisor makes every effort to include updated, accurate information. The above content may not include all terms, conditions, limitations, exclusions, termination, and other provisions of the policies described, some of which may be material to the policy selection. Please refer to the actual policy documents for complete details. In case of any discrepancy, the language in the actual policy documents will prevail. All rights reserved.
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- Delaying a life insurance purchase can cost you, premiums rise as you get older
- Life events beget life insurance. Buying a home, having children, and getting married are good indicators that there are those in your life who depend on your income to maintain their quality of life.
- As your age rises, so does the likelihood of a medical event or condition that could raise the price of your insurance premiums, or outright disqualify you for coverage.