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Young People Need Life Insurance Too
By Michael R. Collins
Even if you think you are “too young” to purchase life insurance, there are many reasons you should consider – including the fact that, assuming you are healthy, buying life insurance may never be easier and cheaper. The older you get, the more you will have to pay for coverage. And if you should develop health issues, insurance could become even more costly or even unavailable.
Even single people have obligations they can protect through life insurance. First, consider your financial and legal obligations: Do you have a mortgage or a lease, a car loan, college loans? If you die, your creditors could try to recover those obligations from your estate. This could reduce the amount of your estate and/or delay the time until it passes to your heirs, which could leave them on the hook for expenses such as funeral costs and any other final expenses you have.
In addition, you might have moral obligations. For example, are you helping your parents or siblings with any of their expenses, or are you expecting to provide help in the future? If you die, you may not have sufficient assets to fulfill those obligations/desires.
The same obligations exist once you get married or enter into a long-term relationship. Do you and your spouse or partner jointly own a house or a car? Have you taken on any financial obligations? Could your spouse or partner continue to pay these obligations without your income?
Having children often prompts young people to think about purchasing insurance, and with good reason. If you died, your children would have significant financial need. There is the issue of their daily living expenses, of course, and most people think about funding college. Other important considerations include things you planned to pay for, such as a bar mitzvah or a wedding, a trip to Europe after college, or a down payment on a home someday. What happens to those plans if something happens to you?
When deciding how much life insurance you need, a good place to start is by totaling your actual obligations. Include your funeral expenses and the cost of paying off any debts. Then add any moral or ethical obligations you have, as well as any money you would like to provide for family, friends or charities.
If you have a spouse or domestic partner, consider the impact of losing your income on the surviving person’s ability to repay any debts you hold in common and/or to maintain their current lifestyle. Also consider less-obvious impacts. For example, if your spouse or partner is currently in school, could he or she continue if you were not around? If not, what impact might leaving school have on your partner’s future income potential and/or career opportunities?
If you have children, there are even more considerations. If you are a single parent, you need to consider all the costs that your children might incur growing up. These obviously can depend on the age of the children as well as on your dreams and plans for their future.
If you have a spouse or partner, consider what it would cost your partner to make up for your income loss. If you are the primary wage-earner, start with your current income as well as your expected income over time. Then add any child care costs if your partner goes back to work or increases his or her hours to make up for your income. If you are a stay-at-home parent, consider the cost of paying someone to do what you do, from child care, to cooking, to cleaning the house.
You might purchase group life insurance as a benefit from your employer. However, evaluate the amount of coverage, the cost of coverage and the portability. How much coverage can you get, and is it enough? How much will you pay for the coverage, and could you get a better policy on your own? What happens to your coverage if you lose your job or choose to move on?
Usually insurance through your job is not sufficient to cover all of your needs; you probably should consider at least some coverage on your own. The good news is that the insurance you need probably costs much less than you think. This is especially true if you buy term insurance, which is designed – and priced – to expire after a specific term, usually 10 or 20 years. Because the overwhelming likelihood is that you will not die before that term expires, the premiums are usually very inexpensive when you are young and healthy.
Where do you shop for life insurance? You can purchase insurance from an agent or a broker. The main difference is that an agent is an employee of and has a financial responsibility to a specific insurance company. In other words, the agent can only sell you coverage offered by that company, regardless of whether their policies are best for you.
A broker, on the other hand, is responsible to you and is your advocate with insurers. A broker will help you decide on the kind and amount of coverage you need, and then negotiate with various insurers to obtain the best coverage at the best price from a highly rated carrier.
At The Bensman Group, we are brokers, and we will help you evaluate your specific situation and identify a customized solution given your individual needs and desires. For a complementary (no obligation) consultation, contact Michael Collins at 847-572-0803, or firstname.lastname@example.org.