When is the best time to get life insurance?
The simple answer is when you are young. The younger you get life insurance, the better.
That said, data suggests it’s not happening. According to a 2023 study by LIMRA, the Life Insurance Marketing and Research Association, and Life Happens:
- 52% of Americans have life insurance. More than 40% think they need more life insurance coverage.
- In general, young people are less likely to have coverage and more likely to live with a gap in the coverage they need. Millennials are almost 10% below the average, and Generation Z is tracking even lower.
And consider this from the Census Bureau: the latest numbers on our aging population show the average age of an American creeping toward 40 (it was 38.9 in 2022). For context, the average age in 1960 was 29.5.
If there is ever bad news for life insurance rates, it is an aging population.
I think we are set up for a useful discussion on the merits of life insurance, young or not.
How does age affect life insurance rates?
Many factors influence the cost of life insurance, but many would agree one factor tops the list.
Age.
Mortality rate is one of the most important factors insurers use in evaluating how much and at what price we can be approved for life insurance.
Let’s take a couple of examples:
- Sonja. She is a 25-year-old college graduate, and her age is a huge advantage for life insurance. Her longer life expectancy and good health translate into lower risk and lower premiums. However, her rates will rise as she ages, so she must decide how she can find a place in her budget for life insurance.
- John. He is a 50-year-old in good health... but his age is becoming a boat anchor on his desire to get more life insurance, despite his desire to shore up long-term security for his loved ones. Insurance companies factor in the increased potential for health conditions as you age, including those in your immediate family, making every year that goes by for John more and more expensive.
That’s why I will continue to say that today is the best time to purchase life insurance.
What type of life insurance is best for my age?
Let’s first do a quick refresher on the two main types of life insurance: term life and permanent life insurance:
- A term life insurance policy is for a specific period of time, typically 10, 20, or 30 years. Term life policy premiums are level for the period of the term. Premiums go up as you age.
- A permanent insurance policy is for your entire life and has a cash value component that is funded by a portion of the premium. There are several types of policies under the permanent life insurance umbrella, including whole life insurance, universal life, and others that provide a death benefit payout and the potential for cash value buildup in multiple ways.
Let’s look at a few examples.
Young, Single, Just Starting Out
There’s an argument that many make that the right answer is “none is needed.” But, like always, it depends on your situation. Beyond the obvious funeral costs if you die, are there financial obligations that might pass to others, such as student loans where someone co-signed with you? We know this is an issue with so many young adults. Term insurance would be the perfect choice.
Younger Age Family, Kids on the Way
This life stage is a bullseye for life insurance. The needs and considerations of this family check just about every box. Both term and permanent could be considered. In some cases, if the budget allows, a combination of the two could work, attacking both short- and long-term needs (this is where a strategically creative, licensed agent could be very helpful). As we have discussed, permanent insurance, like a whole life policy, is more expensive than term but brings with it some interesting ways to start building toward retirement.
Older Adults, Kids Out of the House
With your children on their own, the need for life insurance may have changed. The big considerations at this point in your life are a mortgage, health care, credit card debt, and any other large obligations. Those could be potentially offset with life savings and other investments, which would further lower your need for life insurance. If you have health issues, it is worth looking into a guaranteed issue life insurance policy. It won’t require a medical exam but will be more expensive.
The Bottom Line: What is the cost of waiting to get life insurance?
If you are one of the 40% of Americans who think they need more life insurance, there is no time like the present to fix that.
Insurance rates are rising to serve an aging population. Think about your peace of mind and your family’s security, and get with a licensed insurance agent or financial professional to determine which life insurance product fits your needs and plans.
