What is the Best Type of Life Insurance for Young Adults?

 

If you’re a young adult, you may think that life insurance is something you don’t need to worry about until you’re older. But life insurance can be a smart and valuable purchase for young adults, especially if you have people who depend on you financially, such as a spouse, children, or aging parents.

Life insurance can also help you cover your debts, such as student loans, mortgages, or car loans, in case something happens to you. It can also help you plan for your future goals, such as starting a family, buying a home, or saving for retirement.

But what is the best type of life insurance for young adults? There are two main types of life insurance: term and permanent. Each type has its own pros and cons, and the best one for you depends on your needs, goals, budget, and preferences.

In this article, we’ll explain the differences between term and permanent life insurance, and how to choose the best type of life insurance for your situation. We’ll also give you some tips to save money and get the best deal on life insurance as a young adult.

Term Life Insurance: Pros and Cons

Term life insurance is a type of policy that covers you for a specific period of time, such as 10, 20, or 30 years. If you die within the term, your beneficiaries will receive a lump-sum payment called the death benefit. If you outlive the term, your coverage will expire and you’ll have to renew it or buy a new policy.

Term life insurance is usually the best choice for young adults who need life insurance for a temporary purpose, such as paying off debts, replacing income, or protecting dependents until they become financially independent.

Some of the pros of term life insurance are:

• Affordability: Term life insurance is the cheapest type of life insurance because it only covers you for a limited time and has no cash value. You can get a large amount of coverage for a low monthly premium. For example, a healthy 25-year-old male can get a $500,000 term policy for 20 years for about $20 per month.
• Simplicity: Term life insurance is easy to understand and buy. You just need to choose a coverage amount and a term length that suit your needs. You can get a quote and apply online in minutes. Some insurers may not even require a medical exam.
• Flexibility: Term life insurance gives you the option to adjust your coverage as your needs change. You can cancel your policy at any time without any penalties. You can also convert your term policy to a permanent policy if you want lifelong coverage and cash value.

Some of the cons of term life insurance are:

• Expiration: Term life insurance only covers you for a specific period of time. If you outlive the term, your coverage will end and you’ll have to buy a new policy or renew your existing one. This can be more expensive and difficult as you get older and your health declines.
• Lack of cash value: Term life insurance has no cash value component. This means that you won’t accumulate any savings or investment returns from your policy. You also won’t be able to borrow against your policy or use it for other purposes.
• Potential increase in premiums: Term life insurance has fixed premiums for the length of the term. However, if you renew your policy or buy a new one after the term expires, your premiums will likely increase based on your age and health at that time.

Permanent Life Insurance: Pros and Cons

Permanent life insurance is a type of policy that covers you for your entire life as long as you pay the premiums. It also has a cash value component that grows over time on a tax-deferred basis. You can access your cash value through loans or withdrawals for various purposes, such as paying for education, retirement, or emergencies.

Permanent life insurance is usually the best choice for young adults who need life insurance for a lifelong purpose, such as leaving a legacy, creating an estate plan, or diversifying their portfolio.

Some of the pros of permanent life insurance are:

• Lifelong coverage: Permanent life insurance provides lifelong protection for your loved ones. You don’t have to worry about your coverage expiring or renewing it at a higher cost. As long as you pay the premiums, your beneficiaries will receive the death benefit when you die.
• Cash value accumulation: Permanent life insurance has a cash value component that grows over time on a tax-deferred basis. You can access your cash value through loans or withdrawals for various purposes, such as paying for education, retirement, or emergencies. You can also use it to pay your premiums or increase your death benefit.
• Tax benefits: Permanent life insurance offers several tax benefits that can enhance your financial situation. The death benefit is generally tax-free for your beneficiaries. The cash value grows tax-deferred and can be accessed tax-free through loans or withdrawals. You can also transfer your policy to another person or entity without any tax consequences.

Some of the cons of permanent life insurance are:

• Higher cost: Permanent life insurance is more expensive than term life insurance because it covers you for your entire life and has a cash value component. You can expect to pay up to 10 times more for a permanent policy than a term policy with the same coverage amount. For example, a healthy 25-year-old male can get a $500,000 whole life policy for about $200 per month.
• Complexity: Permanent life insurance is more complicated than term life insurance because it has different types, features, and fees. You need to understand how your policy works, how your cash value grows, and how to manage your policy. You also need to consult a financial professional or an agent to buy a permanent policy.
• Fees and surrender charges: Permanent life insurance has various fees and charges that can reduce your cash value and death benefit. Some of these fees include mortality and expense charges, administrative fees, investment fees, and loan interest. You may also have to pay surrender charges if you cancel your policy or withdraw more than the allowed amount from your cash value.

How to Choose the Best Type of Life Insurance for Your Situation

The best type of life insurance for you depends on your personal situation and preferences. There is no one-size-fits-all answer, as different types of policies have different advantages and disadvantages.

Before buying a policy, you should assess your needs, goals, budget, and preferences. Some factors to consider when choosing a type of life insurance are:

• Coverage amount: How much money do you want to leave behind for your beneficiaries? This depends on your income, debts, expenses, and future plans. A common rule of thumb is to multiply your annual income by 10 or 15, but you may need more or less depending on your situation.
• Duration: How long do you need life insurance for? This depends on your age, health, family situation, and financial obligations. If you only need coverage for a temporary purpose, such as paying off debts or protecting dependents until they become independent, term life insurance may be enough. If you need coverage for a lifelong purpose, such as leaving a legacy or creating an estate plan, permanent life insurance may be better.
• Cost: How much can you afford to pay for life insurance? This depends on your income, expenses, and savings. You should choose a policy that fits your budget and doesn’t compromise your other financial goals. Term life insurance is usually cheaper than permanent life insurance, but it also has less benefits and features.
• Cash value: Do you want to accumulate cash value from your policy? This depends on your financial goals, risk tolerance, and investment strategy. If you want to build savings or investment returns from your policy, permanent life insurance may be suitable. If you don’t care about cash value and prefer to invest elsewhere, term life insurance may be enough.
• Riders: Do you want to add any extra benefits or features to your policy? This depends on your needs, preferences, and situation. Riders are optional add-ons that can enhance your policy by providing additional coverage or flexibility. Some common riders include accelerated death benefit rider, waiver of premium rider, disability income rider, and term conversion rider.

Based on our research and criteria, some of the best life insurance companies for young adults are:

• Protective: Best overall
• Banner: Runner-up
• Mutual of Omaha: Best for customization
• Haven Life: Best for instant issue
• Nationwide: Best for living benefits

Tips to Save Money and Get the Best Deal on Life Insurance

Life insurance is an important purchase that can protect your loved ones and secure your financial future. But it doesn’t have to break the bank. There are some ways to save money and get the best deal on life insurance as a young adult. Here are some tips to lower your life insurance rates and get the best value for your money:

• Compare quotes from multiple insurers: The best way to save money on life insurance is to shop around and compare quotes from different insurers. You may find significant differences in rates and features among different companies. You can use online tools or platforms to get quotes from multiple insurers in minutes.
• Buy a policy sooner rather than later: The best time to buy life insurance is when you’re young and healthy. The older you get, the more expensive and difficult it becomes to get coverage. By buying a policy sooner rather than later, you can lock in lower rates and avoid potential health issues that can increase your premiums or disqualify you from coverage.
• Improve your health and lifestyle: Another way to save money on life insurance is to improve your health and lifestyle. Your health is one of the main factors that affect your premiums because it determines your risk of dying sooner than expected. By improving your health indicators, such as blood pressure, cholesterol, weight, and blood sugar, you can lower your risk profile and qualify for better rates. You can also improve your lifestyle by quitting smoking, drinking moderately, exercising regularly, and avoiding risky hobbies or occupations.

• Choose the right policy type and term length: Another way to save money on life insurance is to choose the right policy type and term length that match your needs and goals. Term life insurance is cheaper than permanent life insurance because it only covers you for a limited time and has no cash value. You should choose a term length that covers your longest financial obligation, such as paying off your mortgage or sending your kids to college. If you need lifelong coverage, you may consider a permanent policy that has cash value and other benefits, but be prepared to pay more in premiums.
• Take advantage of discounts and riders: Another way to save money on life insurance is to take advantage of any discounts and riders that may be available from your insurer. Some insurers may offer discounts for paying annually instead of monthly, bundling multiple policies, or having a good driving record. Some insurers may also offer riders that can enhance your policy without increasing your cost too much, such as accelerated death benefit rider, waiver of premium rider, disability income rider, or term conversion rider.

Conclusion

Life insurance is a smart and valuable purchase for young adults who want to protect their loved ones and secure their financial future. But it can also be confusing and overwhelming to choose the best type of life insurance for your situation.

There are two main types of life insurance: term and permanent. Each type has its own pros and cons, and the best one for you depends on your needs, goals, budget, and preferences.

Before buying a policy, you should assess your situation and consider some factors, such as coverage amount, duration, cost, cash value, and riders. You should also compare quotes from multiple insurers and look for the best deal possible.

By following the tips in this article, you can:

• Understand the differences between term and permanent life insurance
• Learn how to choose the best type of life insurance for your situation
• Save money and get the best deal on life insurance as a young adult

Don’t wait until it’s too late to get the coverage you need and deserve. Start comparing quotes from multiple insurers today and apply for a policy that fits your needs and budget.