Life Insurance for Young Adults?
What is life insurance? Life insurance is a way for you to guarantee that your family or loved ones will be taken care of in the event of your death. There are two main types of life insurance: term life insurance and permanent life insurance.
Term life insurance is the easiest type of life insurance to understand. It provides a death benefit without any type of investment, or savings, or cash value component. Permanent life insurance has a cash value or savings component. Remember the movie, "It's a Wonderful Life"? What you've never seen it? In one scene, George Bailey, the main character, wants to cash in his life insurance policy. And the banker says something that doesn't make him very happy. Let's take a quick look.
George: I'm in trouble, Mr. Potter. I need help. Through some sort of an accident, my company's short on their accounts. The bank examiner got there today. I've got to raise $8,000 immediately.
Mr. Potter: What kind of security would I have, George? Have you got any stocks?
George: No, sir.
Mr. Potter: Bonds? Real estate? Collateral of any kind?
George: I have some life insurance. $15,000 policy.
Mr. Potter: Yes... how much is your equity in it?
George: $500.
Mr. Potter: $500? And you ask me to lend you $8,000? No securities. No stocks. No bonds. Nothing but the miserable little $500 equity in a life insurance policy. You're worth more dead than alive.
LaTisha: Okay. So there we saw that George Bailey had what was probably called permanent life insurance because he had a cash component. But unfortunately, he hadn't paid in enough to receive the cash value. But it doesn't matter because everything ended up great because it really is "A Wonderful Life." Do I need life insurance as a young adult? Well, let's think about this. You really, like, as a young adult, like who are you taking care of? You're really taking care of yourself at this point in your life. So, you're thinking, "Why would I need life insurance?" Well, I'm going to give you three reasons why you need life insurance as a young adult.
Number one. It's cheaper. Do we really even need two more reasons? Can we just stop there? It's usually cheaper to buy life insurance now while you're younger. Because you have a longer expected lifespan, your premium is going to be a little bit cheaper now while you're younger as you're paying into your life insurance policy. And typically, typically you can lock in your premium now. So, for example, I have life insurance that I purchased through my company when I first started there. And the premium that I'm paying right now is locked in for a certain number of years, a certain amount of time, so that I don't have to worry about the premium going up as I get older. Because I locked it in at my age-tier range, I was able to lock in that amount. So that's something to think about. You want to go ahead and purchase life insurance while you can, while you're young, while it's cheap right now.
Reason number two. Life insurance can help with your business or estate transfer goals. So if you have a business like I do, like I hope you do, or you're getting started with a business, then at some point you're going to want to transfer that business. So life insurance can help you with your business transfer goals. Okay. Reason number three. You can use life insurance as long term savings. Life insurance that you can use as long term savings is called whole life insurance. The cash value is not going to be FDIC insured as it would with a normal savings account. Ready to learn more about life insurance? I know you are. Go to youngadultfinances.com/lifeinsurance and learn more about life insurance and where you can get it as a young adult.
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