Life Insurance: My Early Purchase Decision Explained

Life insurance is often associated with death and old age, but it is an important investment for young people to consider. I purchased life insurance at 23 because it is a cornerstone of any financial plan, providing a safety net for myself and my loved ones. Life insurance is a valuable investment for young people with debt, such as student loans, or those who want to lock in lower premiums while they are young and healthy.

Locking in a low rate

Life insurance is generally cheaper when you are younger and healthier. By purchasing life insurance at 23, you can lock in a low rate for a term that makes sense for you. This means that your premium will remain the same throughout the coverage period. For example, if you purchase a 20-year term policy, your rate won't change during those 20 years. However, if you choose to renew your coverage at the end of that term, you may have to pay a higher rate.

The ability to lock in a low rate is one of the most overlooked benefits of purchasing insurance at a young age. As you get older, your chances of getting sick or developing health issues increase, and insurance carriers adjust the price of coverage accordingly. By locking in a low rate now, you can give yourself peace of mind, knowing that there is a financial safety net for your loved ones. This is especially important if you have dependents who rely on your income or if you have a lot of debt.

Term life insurance is the most basic and affordable type of coverage, and it allows you to obtain valuable death benefit protection at a low cost. With term life insurance, you can choose coverage for a specific period, typically one, 10, 15, 20, or 30 years. During this time, your premiums will either stay level or increase at predetermined intervals. For example, a 21-year-old non-smoking female in excellent health can get a 20-year term policy with a death benefit of $100,000 for about $113 a year. The same policy for a 40-year-old would cost almost $140 a year.

Permanent life insurance, on the other hand, offers coverage for your entire life and often includes a savings component that builds cash value over time. This type of insurance is more expensive than term life insurance, but it can be a good option if you want lifelong coverage and the ability to build assets. Some permanent life insurance policies let you lock in your insurance premium for a lifetime, which means your rate won't go up as you get older or if your health status changes.

Protecting my family

As a young adult, I understand that my financial responsibilities will only increase over time. I may start a family, buy a home, or take on other financial obligations. By purchasing life insurance now, I can lock in lower premiums while I'm young and healthy. This way, I can secure a financial safety net for my family at a more affordable rate.

Term life insurance, which covers a specific period, is a popular option for young adults. It offers flexibility, allowing me to choose coverage periods that align with my future plans. For example, I can opt for a 15- or 20-year term that coincides with my children's education or the duration of my mortgage. This way, I can ensure that my family's financial needs are met during these critical periods.

Additionally, permanent life insurance, also known as whole life insurance, offers lifelong coverage. While it tends to be more expensive, it provides additional benefits, such as accumulating cash value over time. This cash value can be accessed to supplement retirement income or help with significant expenses like my children's education. By starting early, the cash value has more time to grow, potentially resulting in a valuable asset for my family's future.

By purchasing life insurance at 23, I am taking a proactive approach to protect my family. It gives me peace of mind, knowing that my loved ones will be financially secure no matter what the future holds. While it may not be a priority for everyone my age, life insurance is a valuable tool for safeguarding the financial well-being of those I care about most.

Building cash value

Permanent life insurance, also known as whole life insurance, offers coverage for the remainder of your life and the opportunity to accumulate cash value on a tax-deferred basis. Permanent life insurance is protection for your entire life, not just a limited period of time. It tends to be more expensive than term life insurance, but this is because of the additional cash value benefit it provides.

Whole life insurance, universal life insurance, and variable life insurance are types of life insurance that can build a cash value. Term life insurance, which is for a set period, does not build cash value. With permanent life insurance, a portion of the premiums you pay accumulates over time. You can tap into this cash value to fund financial goals like retirement, college expenses, or buying a home.

In the early years of the policy, a higher percentage of your premium goes toward the cash value. Over time, the amount allotted to cash value decreases, and the cost of insuring your life gets more expensive for the insurance company. This is why the older you are, the more it costs to purchase a new life insurance policy of any type. The interest and earnings of your cash value will grow tax-deferred until you use the funds.

You can use your cash value in a variety of ways. You can take a withdrawal, a loan, or completely cash out your life insurance's cash value. However, some uses may result in changes to your death benefit amount or even end your life insurance coverage. For example, if you cash in your policy, your coverage will end, and a death benefit will not be paid upon your passing.

You can build up cash value faster by increasing the size of your premium payments if your policy allows it. For policies that don’t allow it, there may be other options, such as using any dividends earned to purchase paid-up additions.

Peace of mind

Firstly, securing life insurance at a young age provides peace of mind that your loved ones will be financially protected in the event of your premature death. This financial safety net ensures that your dependents, such as a spouse, partner, children, or parents, will not face financial hardship and can maintain their standard of living. It can cover living expenses, debts, and other liabilities, providing reassurance that your loved ones will be taken care of.

Secondly, purchasing life insurance early locks in lower premiums and insurability. As a 23-year-old, you are likely to be healthier, resulting in lower insurance costs. By acting now, you can ensure coverage at a reduced rate, even if you develop health issues later in life. This foresight provides peace of mind, knowing that you have secured the best rates and that your future financial obligations will be manageable.

Moreover, life insurance offers peace of mind by providing flexibility and financial benefits throughout your life. Many policies allow you to accumulate cash value, which can be accessed for various purposes, such as purchasing a home, investing in education, or supplementing retirement income. This aspect of life insurance gives you the reassurance that your financial needs will be supported at different life stages.

Additionally, life insurance can provide peace of mind by protecting you from financial risks associated with certain debts, such as private student loans. In the unfortunate event of your demise, life insurance ensures that your loved ones are not burdened with these financial liabilities, allowing them to grieve without the added stress of unexpected expenses.

Finally, life insurance offers the reassurance that comes with being prepared for the future. While it may not be a priority at 23, purchasing life insurance demonstrates financial prudence and consideration for your future commitments. It ensures that you are ready for life's uncertainties and any potential financial obligations that may arise with age, such as starting a family or taking on a mortgage.

My health

When I was 23, I was young and healthy, and I wanted to lock in my future insurability. I knew that if I waited until I was older, my premiums would be higher because I would be at a greater risk of developing health issues. I also knew that I might even become uninsurable if I were to develop a chronic condition such as high cholesterol or Type 2 diabetes.

I wanted to protect my parents, partner, and future children by ensuring they would be able to cover bills or other day-to-day expenses if I were no longer around. I also wanted to ensure that my loved ones would not be left with my student loan debt, mortgage, or any other large debts. While federal student loans are discharged upon death, private student loans may not be, and a co-signer could be responsible for repaying them.

I also wanted to build a cash value that I could pass on to the next generation or access later in life to help purchase a home or supplement my retirement income. I knew that certain policies could establish a foundation for retirement income options, and I wanted to keep my options open.

I was in good health, so I was able to get no-exam coverage and a low rate. I was also able to choose an affordable policy that provided enough protection for as long as I needed it. I knew that life insurance costs less when you are younger, and I wanted to lock in a low rate while I was young and healthy.

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