What is life insurance for young adults?
Life insurance for young adults is a policy that can help them rest easier, knowing that if they unexpectedly pass, they're leaving behind money that can take care of their beneficiaries. Whether a person has a partner and children or not, most of us leave behind financial responsibilities.
The best life insurance companies for young adults
Life insurance is only as good as the company backing it. After all, you don't want to pay years' worth of premiums to a Johnny-come-lately company that may (or may not) still be in business when you die. As we researched life insurance companies for young adults, we specifically looked for those with an excellent financial record. We wanted insurers that have stood the test of time and are likely to be around for another 100 years.
Here's what we found:
- Northwestern Mutual: A++ rating from AM Best for financial strength (the highest rating possible)
- Protective: A+ rating from AM Best for financial strength
- State Farm: A++ rating from AM Best for financial strength
- Mass Mutual: A++ rating from AM Best for financial strength
- Nationwide: A+ rating from AM Best for financial strength
- New York Life: A++ rating from AM Best for financial strength
Why should you get life insurance at a young age?
Ask anyone who bought life insurance in their 20s and then purchased more 20 years later. The fact is, the younger you are when you buy a policy, the less expensive the policy premium will be. That's because life insurance companies believe that a young adult has a long life ahead of them and that they will be paying premiums for many (many) years. The time to buy life insurance at a low price is when you're young.
Here are two more reasons why buying life insurance while you're still young makes sense:
- Snag a lower price. If you're healthy now, lock in a lower premium price before age-related issues begin to creep up.
- Protect your loved ones. If you have a partner, it's important to make sure they're okay after you're gone. And if you have any bills that someone else was kind enough to cosign, life insurance will prevent them from having to pay the debt in full. For example, if you die with credit card debt that someone cosigned, the card company will come to them for payment. Remember to make anyone who has cosigned a loan for you a beneficiary to your life insurance policy.
READ MORE: How to Buy Life Insurance: Step-by-Step Guide
Life insurance policies for young adults
There's no one-size-fits-all option in life insurance. The type of policy you purchase depends in large part on your long-term goals. One word of warning here: Never buy a policy because a very polite but slick agent talks you into it. You can be assured that the harder you're sold on an insurance product, the more commission the agent is set to earn if you make the purchase.
Take some time before signing on the dotted line. Ask yourself if it's really the right policy for you and if you're paying for options you need and want. Once you commit to a life insurance policy, it's yours for life or until the term expires.
Here's a sample of some of the options available. While it does not represent every policy option on the market, these are four of the most common:
Term life
Term life is the most affordable type of life insurance. As the name suggests, term life provides coverage for a set term. For example, a 30-year policy provides coverage for 30 years as long as premiums are paid.
Whole life
Unlike term life insurance, whole life provides coverage for your entire life, paying benefits as long as premiums are up to date. It's considered a type of "permanent insurance." One component of whole life is the savings portion. Part of each premium payment goes toward building cash value over time. This is money you can eventually borrow against, although you repay the funds with interest.
Universal life
Like whole life insurance, universal life is permanent and remains in effect as long as premium payments are made. The big difference between whole life and universal life is that universal life offers more flexibility. The policy allows you to increase or decrease your death benefit. For example, you may want one death benefit while kids are growing up and lower that benefit as they build adult lives of their own. Universal life also offers a cash component. What sets it apart from whole life is that the interest rate is not fixed and can change over time with market conditions. After years of paying into universal life, you'll eventually have enough cash put away to pay premiums.
Variable life
Another permanent insurance product is variable life. Like the others, it remains in effect as long as premiums are paid. The name "variable life" describes how the policy works. Cash value rises and falls based on specific investments you've chosen. There's the potential to earn more cash value by investing the funds, but you also run the risk of losing everything but the death value on your policy.
Note: Whole life policies cost roughly 10 times more than term life policies, a startling enough fact to give budget-minded young adults a pause.
There are lots of things we get to do as adults that are fun, some we do because we have to, and others we do because it's smart. Buying life insurance falls into that last category.
