I had the most amazing conversation with a paralegal yesterday about life insurance. We were discussing a client’s tragic situation where he has been unemployed for four years and recently lost his wife in a car accident. We both couldn’t imagine how hard that would be to lose a spouse, let alone to do so in such dire financial straits. Of course, my first thought was “that’s why it’s important to have life insurance.”
I stressed the importance of having life insurance with this paralegal, let’s call her PL, after she got married last year. I think the benefit of purchasing a policy is finally starting to sink in for her. But she had talked to her mom who told her she was too young to get life insurance. While I try not to contradict motherly advice, I told her I couldn’t disagree with her mom more.
Getting term life insurance when you’re young is the best time to get insurance. Here are three reasons why:
1. It’s cheaper! Life insurance companies are in the business of making money. And in the term-insurance arena, they do so by winning the gamble that you will outlive your term policy. In other words, if you buy a 30-year term policy, they win if you live longer than 30 years. Not only do they not have to pay you (or rather your beneficiaries), the company gets to bank and reinvest your premiums. These companies use all sorts of health information, actuarial tables, and analytical tools to make solid bets. But it’s a gamble nevertheless.
The younger and healthier you are, the longer you will likely live. You are also likely closer to your ideal weight and in better shape in general than you will be 10 or 20 years from now. For that lack of risk in insuring young, healthy you, you can lock in lower, fixed premiums. For example, a $500,000, 30-year term policy could cost you $40 per month. That type of payment should work even for those with tight budgets because they are just starting out in the work force.
2. You have less adverse events affecting your eligibility: I remember a time not long ago when I thought I was invincible. That mindset stemmed from my lack of experience with death and illness. However, seeing my father fight cancer changed that thought forever. PL had a similar experience when her mom had a heart attack.
The longer you live, the more likely you will experience a negative event. And if that event results in a recurring medical condition or occurs because of risky behavior, you may not qualify for life insurance. Better to get insurance while you’re young and don’t have has much health- or life-related baggage.
3. You have time to think about and plan for life insurance: No one can predict the future. But many people, like PL, want to have a family. She’s married and expects to have children someday. Her unexpected death would have a huge impact on her family’s lives.
You should consider life insurance on par with any good financial planning tool. It’s better to do it now before children, family obligations, and life make it even harder to find the time to go through the insurance application process.
Even those single folks with no dependents could benefit from a small policy to cover burial expenses. With funeral expenses running on average from $2000 to more than $7000, it’s a nice gesture to cover your own expenses rather than leaving loved ones to foot the bill.
As I have said before, money will never replace the loss of a loved one. But it can give you, your spouse, or your children the opportunity to grieve without additional financial pressures. This reason is why life insurance plays such an essential role in your financial planning portfolio. If you can get it when you’re younger when your premiums will be low, you have less adverse events affecting you, and you have more time to do family planning, you should take advantage of that opportunity.