Next to the question ‘Who needs life insurance?’ is ‘WHEN’. When is the best time to get life insurance? Should it be when you’ve got a fiance/fiancee and are planning on starting a family of your own? Is it when you already have your firstborn, so you can start preparing for a college education? Or is it when you start feeling something different physically and are concerned about your health and the future of your family? We’d even hear people say ‘Why get your child life insurance? They’re too young. They don’t need it.” Well, these are all valid concerns, so let’s look at a few factors that might help you decide.
Age, Pricing, and Eligibility
Regardless of the type of life insurance policy, one key factor that affects the premium or the amount paid to the insurance company is the age of the insured. The underlying assumption here is that the younger you are, the less risk there is on the part of the company. The younger you are, the farther you are from the average life expectancy. In other words, the younger you are, the longer the time it will take before the company will have to pay death benefits. Therefore, for an insurance policy with a death benefit of $20,000, with everything else the same, a 20-year old will pay less premium than a 45-year old will.
According to Investopedia, the average increase in premiums every single year that we age is about 8%-10%. It is important to remember that age does not only affect the premiums. It also dictates whether or not one even qualifies for specific types of policies. For example, someone who is already 75 may no longer be eligible to apply for a 20-year term policy (which means that the insured will be paying the same amount each year and will be covered for 20 years).
Health, Pricing, and Eligibility
The state of our health affects our eligibility and the pricing of life insurance policies as much as age does. The less healthy we are, and the more risk factors we have (i.e., hypertension, diabetes, etc.), the higher our premiums are more likely to be.
So, if you’re going to think about what age you should consider getting life insurance, the most practical answer would be “while you are still very healthy and as soon as you can afford it.” This naturally goes back to the ‘age’ factor. Obviously, under normal circumstances, the younger we are, the less health risks there are. Unless a person is born with a congenital disease or gets into an accident prior to getting life insurance, it is the assumption that a 20-year old is healthier than a 45-year old. One big difference is, when you already have a pre-existing condition, which means the condition/disease is already present at the time of application, you will either end up paying higher premiums or not qualify to get a policy at all, depending on the types of products the underwriting company offers.
Time and Growth of Cash Value
Times have changed and even life insurance policies have evolved. Policies no longer only provide death benefits. There are variations that have a savings component, as well as plans that offer benefits you can use while still living. And of course, the earlier you start, the more you get when you retire should you want to use the funds for this purpose.
For example, my friend bought his daughter’s life insurance at age 0. That’s right before she was even born. And yes, you can do that too. The plan they got was payable in 10 years, which means they only had to pay premiums until she was 10. His daughter is now 18, and they had a couple of options. He could either use some of the funds to pay for her college education or choose to leave it for a few more years and give her the funds as a college graduation gift. Or, just leave it to grow until they’d have a need for it in the future to start a business or perhaps use the funds as a downpayment for a property they can rent out for passive income. There are numerous possibilities in terms of what you can do with the money. But the important decision to be made is to actually get the policy and start securing your future.
As discussed in the previous paragraphs, age and health are two very important factors that affect the premiums of a life insurance policy. Another reason to start early is that, in general, young adults can qualify for a life insurance without being required to have ‘standard tests’ for health, whereas someone already in their forties might not only have to have their urine and blood tested but depending on where in their forties they are, an applicant may already be required to go through EKG (or ECG, a test for the heart), medical exams and lab work.
You know how sometimes people tend to be forgetful, especially as we age? Well, if the underwriter feels that there’s reason to believe that the applicant has cognitive impairment or is known to take medicine prescribed to people with memory loss issues, it could be a basis to decline any application for life insurance. This is not to say that people with Dementia or similar diseases can no longer get life insurance, but it definitely narrows down the options.
Benefits of Getting Life Insurance While You’re Young
One of the main benefits of getting life insurance while you are young is that it is cheaper--always remember this. Because it is cheaper, when you get a policy while you are still single, you are more likely to either afford a better plan, or you will be sure to encounter fewer bumps along the way because you will less likely find yourself in situations of financial emergencies as compared to someone who is already married and has kids.
Also, unlike how things were decades ago, life insurance is no longer just about leaving a certain amount of money to the beneficiaries when the insured passes. Our financial needs evolve as we enter different stages of our lives, and a life insurance policy can fill the different needs that these different stages present. The accrued cash value of a policy can be used to pay off debts, help pay for children’s education, or replace income when the insured can no longer work due to illness or disability.
When it comes to income replacement, life insurance policies are not only helpful for people who have families or dependents. Not everyone has somebody else to rely on. When we don’t have other people who depend on us financially, but we also don’t have any other source of income should we find ourselves in a predicament where we can no longer work or are diagnosed with a critical illness, having life insurance and the right kind of coverage will help immensely. But if we do pass unexpectedly, having life insurance, no matter how small the death benefit may be, will still help our loved ones with the final expenses such as burial or cremation.
Financial responsibilities vary amongst different people, but we all have something in common. We all either rely on ourselves for financial support or also have others depending on us for their daily living expenses. If you weren’t able to get yourself a life insurance 5, 10 or 20 years ago, it’s never too late to get one. It’s just a matter of which plan will be most beneficial to you. If you’re young, working, and can afford to get yourself one, look into it. Your future self will thank you for taking the time to understand the benefits of having a life insurance policy and acting on it today. Remember, get a policy that you can afford. You can always upgrade or get supplemental policies as your income increases or as your needs to change over time.