October 3, 2019

Do I Need Life Insurance In My 20s?

When most people think of life insurance, they think of it as a financial step that you take once you reach your 30s. And on the surface, that makes a lot of sense.

  • After all,  many people in their 20s are still single.
  • Or if they are married, they often don’t have any kids yet.

In other words, most people in their 20s don’t have anyone in their life yet who depends on their income for survival.

But there are still certain situations where getting life insurance in your 20s may be a smart move. I personally got my life insurance policy at age 25. And no, I didn’t have any kids yet.

Why would I do that? And more importantly, what are some reasons why you may want to open a life insurance policy in your 20s? Let’s take a look.

1. You have private student loans that are co-signed by your parents.

As we’ve talked about numerous times, student loans have become the new mortgage in the U.S.

  • It is not unusual today for students to graduate with more than $100,000 of student loan debt.
  • Additionally, since many students can’t qualify for these enormous student loan amounts on their own, parents are increasingly co-signing on their children’s student loans.

What happens if a borrower dies before they’ve paid off student loans that were co-signed by their parents?

Well, if those loans were federal student loans, they’re automatically discharged at death. Yes, even Parent Plus loans.

But if they were private student loans, things get a lot more complicated. Some student loan companies like SoFi have death discharge benefits on their student loans, but many do not.  This is another question that you need to ask before refinancing with any private student loan company.

If you currently have a co-signed private student loan with a lender that does not discharge loans at death, a life insurance policy can be used to pay them off, protecting your parents from possible financial hardship.

If you do decide to get a life insurance policy for this reason, then I would recommend only getting a term policy that is large enough to cover your student loan obligations.

  • You can often buy as little as $50,000 in term life insurance.
  • Any term policy under $250,000 will be dirt cheap — especially if you take out the policy in your 20s.

According to Quotacy, the average $250,000 policy for a 25-year-old male is $14/month and 12/month for a female.

2. You and your spouse have joint debt obligations (whether you have kids or not).

In a world where both spouses often work outside the home, it may seem surprising to hear that married people without kids would need life insurance.

The typical advice you hear from financial gurus is that you should only get life insurance if you have dependents that rely on your income. And a working spouse isn’t technically “dependent” on you, right?

Yes, that’s true. But think about this:

Would the loss of your income make it difficult for your spouse to keep up with your mortgage, car loans, or other debt obligations?

When both spouses work, they often use their combined income to decide how big of a mortgage,  car loan, or other debts they can afford.

But what happens when that number is cut in half by the death of one spouse?

The truth is if you have taken out any debt together as a couple, you probably both need to take out a life insurance policy.

The last thing that any person needs when they are dealing with the loss of a loved one is the added pressure of financial stress.

3. You and your spouse plan to have kids down the road.

I left this point for last because I know it will be a tad controversial.

  • One of the unwritten laws of personal finance is that you don’t buy things until you legitimately have a need for them.
  • So why would I tell you to buy a life insurance policy just because you may have kids in your future?

Let me give an example to help you see why, at times, this could be a smart decision.

  • Let’s say when two people get married they are both 27 years old.
  • They definitely want to have kids in the future but aren’t ready to start trying yet.
  • They plan to wait anywhere from 3-5 years before taking the “baby” step (little inside joke there for Dave Ramsey fans).

If things go according to plan, both spouses would be over 30 when they have their first child. They both plan to take out life insurance policies at that time. But in an example like this, I would actually recommend getting life insurance as soon as they can, especially before age 30 if possible.

Why? Because the younger you are when you take out a life insurance policy, the cheaper your premiums will be.

Life Insurance Will Never Be Cheaper Than It Is Now

Sa El, co-founder of SimplyInsurance, explains how you can save a lot of money by getting life insurance in place while you are still young. He says, “Obtaining life insurance in your 20s is the best choice you can make because you are going to get the lowest rate and you are going to be at your healthiest.”

Remember when I said that I took out my life insurance policy at age 25? This was the reason why. My wife and I knew we planned to have kids in the near future. I wanted to lock in a super cheap rate while I could.

Believe it or not, there’s an even bigger incentive for women to take out life insurance policies before having kids.

The reason? It might sound a little harsh, but most women tend to gain a little weight after giving birth to their first child. And, like it or not, weight is one of the biggest factors that influence the price of a life insurance policy.

Conclusion:

The good news? It’s never been a better time to shop for life insurance in your 20s!

  • Startup “insurtech” companies, like Bestow, Ethos and Haven, are leveraging technology in fascinating ways to simplify the life insurance process and cut costs.
  • And comparison sites like PolicyGenius and Quotacy make it easy for you to compare policies from dozens of life insurance companies in a matter of minutes.
  • And I highly recommend giving a couple of your local insurance brokers a call too!
  • Learn more about the best life insurance companies.

Are you someone who took out a life insurance policy in your 20s? If so, I’d love to hear what life circumstances led you to make that decision. Feel free to share in the comments below!

About the author 

Clint Proctor

Hi, I'm Clint! I love writing about everything personal finance. In addition to this site, my work has been featured on several major publications including Business Insider, Forbes, Credit Karma, and U.S. News and World Report. My hope is that you'll be able to find plenty of helpful information and inspiration on this site to help you reach your financial goals. Thanks for visiting!

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