(5 minute read)
Millennials often ask the question, “What is life insurance and do I need it?”
As a millennial myself, I can confidently say that life insurance can be beneficial for young adults.
Firstly, it is important to understand what life insurance is and how it can benefit you.
What is life insurance?
Life insurance is a contract with an insurer (insurance company) that pays out a lump sum of money (death benefit) to beneficiaries after the person insured passes away.
For example, a man has a wife and two kids. His wife is a stay at home mom that depends on her husband financially. The kids are still too young to work and depend on him financially as well. The husband passes away (with life insurance).
Not only have they lost a loved one, but they also have to pay the costs associated with the funeral and find a way to make an income to make up for his loss.
Since there was a life insurance policy in place, the funeral expenses are covered and the family continues to receive the same income as they would as if the father/husband were still alive.
This example proves that:
- Life insurance is a safety net.
- A person can still provide for their loved ones after he or she passes away if they prepare properly.
In the example above, the dependents are the kids and wife. The money they receive after the man’s death is the death benefit.
What are the different types of life insurance?
There are two types of life insurance policies: a term life insurance policy and a permanent life insurance policy.
A term policy is purchased for a period of time.
This type of policy would only be lump sum of money (death benefit) paid out to your dependents if you were to pass away during the term of the policy.
Term policies are usually sold for 5,10, 15,…30 years.
These are called level terms and are one of the most common types of term insurance. However, there are more types of term life insurance.
Term insurance can be inexpensive, but once the policy ends so does your coverage.
Permanent life insurance lasts your whole life and has a saving component as well (the “Cash Value Component” section in this article describes this nicely.)
Due to both of those reasons, expect to pay higher premiums for a longer period of time.
To learn more about which option is best for you by consulting with experienced professionals at this Cleveland Insurance Agency.
Why would someone consider life insurance at a young age?
1. Dependents will be covered financially if you were to die. (Yes, it is possible to have dependents at a young age)
Consider a spouse, girlfriend/boyfriend, children, parents, grandparents, or anyone else that depends on you financially.
If anyone depends on you, you should be considering life insurance.
Also, it is very common for a millennial to graduate college with a significant amount of student loans.
You might be responsible for these loans or you might have a c0-signer (like a parent or guardian) helping you out.
God forbid, if anything were to happen to you, your co-signer would be responsible for any unpaid student loans. A life insurance policy would help pay off this financial burden.
2. Life insurance is less expensive at a young age (when your healthy).
Many young people consider themselves invincible until something bad happens to their health.
If you wait to buy life insurance when you are unhealthy, expect to pay higher premiums.
Avoid this problem, by purchasing life insurance at a time when you are healthy and expect to pay relatively low premiums.
3. You can tell your friends you are saving for the future.
The Cash Value component of permanent life insurance forces you to save for your future.
This helps people at a young age to generate positive money habits. Check out how much money you can save through this life insurance calculator.
Many millennials are known to spend their money on short-term products that do not serve a long term purpose.
Be an outlier and make saving for your future a priority. Permanent life insurance will help hold you accountable.
4. Be financially independent by being responsible for all your expenses (including your funeral expenses).
It says a lot about your character if you make the decision to cover your funeral expenses as well.
5. Be covered all the time.
Some jobs offer life insurance benefits during the on boarding process of a new employee.
However, in most cases you will not have this coverage follow you if you were to switch jobs (which is starting become the new norm).
Having your own life insurance will follow you anywhere and allow you to be covered all the time.
Millennials and Life Insurance
In conclusion, millennials are perfect candidates for life insurance if you have dependents and want to improve your saving habits.
If you are a single person with no one depending on you financially and have awesome saving habits, you may not actually need life insurance unlike auto insurance (find out 5 easy ways to save money on auto insurance).
However, a term policy could be a great low commitment and inexpensive option for the time being.
Regardless of what option you are considering, always make sure to get a quote from multiple companies.
Life insurance is simply a safety net, to ensure that funds will be in place when you are no longer here.
If you are still unsure about what policy is right for you or want clarification on terminology, contact a trusted Cleveland Insurance Agency that has been around since 1849.