Do You Need Life Insurance?

Many younger Americans lack life insurance. A 2014 report from insurance industry analyst LIMRA found that only a third of Gen Y Americans have any life insurance coverage. In the same survey of 6,000 respondents, six in 10 Gen X and Gen Y Americans said their households would be hard pressed to make ends meet if their primary breadwinner passed away.

Why don’t more young adults buy life insurance? Shopping for coverage may seem confusing, boring, or unnecessary. Yet when you have kids, get married, buy a house or live a lifestyle funded by significant salaries, the need arises. Insurers are trying to make it easier these days, not only by making more choices accessible online but by shortening the window of time it takes to approve a policy.

Finding the right policy may be simpler than you think. There are two basic types of life insurance: term and cash value. Cash value (or “permanent”) life insurance policies offer death benefits and some of the characteristics of an investment – a percentage of the money you spend to fund the policy goes into a savings program. Cash value policies have correspondingly higher premiums than term policies, which offer only death benefits during the policy term. Term is a great choice for many young adults because it is relatively inexpensive.

There is an economic downside to term life coverage: if you outlive the term of the policy, you and/or your loved ones get nothing back. Term life policies can be renewed (though many are not) and some can be converted to permanent coverage.

The key question is: how long do you plan to keep the policy? If you would rather not pay premiums on an insurance policy for decades, then term life stands out as the most attractive option – especially if you are just looking for a short-term hedge against calamity. If you are looking further ahead or starting to think about estate planning, then permanent life insurance may prove a better choice. 

The coverage may be cheaper than you think. Young adults sometimes assume they cannot afford life insurance, but policies have become progressively cheaper. If you are 35 and healthy, it will probably cost you less than $20 a month to maintain a 20-year level term policy with a $250,000 payout. The premiums may not even be that much.

Confer, compare & contrast. Talk with a financial or insurance professional you trust before plunking down money for a policy. That professional can perform a term-versus-permanent analysis for you and help you weigh per-policy variables.