When It Comes to Buying Life Insurance, Younger Is Better

The right time to buy life insurance varies from person to person, depending on family and financial circumstances. Generally, you need life insurance if others depend on your income or if you have debts that will continue after your death. However, life insurance becomes more expensive as you age. A healthy, nonsmoking 20-year-old will pay less than someone with the same health profile who is 20 years older. If you wait too long to buy life insurance, not only will it cost more, but obtaining policy approval from an insurer may also be harder.

Why younger is better

When it comes to timing, the younger you are when you buy life insurance, the better. This is because you qualify for lower premiums at a younger age. As you grow older, you could develop health issues that make insurance more expensive or even disqualify you from buying a plan.

However, young people facing mortgages, car payments, and student loan debt tend to postpone buying life insurance. Although paying current debt is critical, missing the opportunity to buy life insurance at a young age has a significant financial impact, much like delaying retirement savings. The sooner it is purchased, the better.

When to buy term insurance

Term life insurance covers you for the policy's term. Although younger is generally better, when that period should begin may also depend on when you expect others to rely on your income. You will want the policy's term to last as long as your dependents need your income. For parents, this is often until their children grow up.

Couples who own property together may want coverage until their mortgage is paid off. If both partners earn income crucial to the family, each should be covered. Parents without earned income may also want to consider coverage, since their unpaid work, such as caring for children, may need to be replaced with paid services, such as day care, if they die.

Life insurance may be prudent even before you have dependents if you have unsecured debt, such as credit card debt or certain private student loans. For example, credit card companies require all outstanding balances to be paid when the cardholder dies.

When to buy permanent life insurance

With a permanent life insurance plan, cash value grows tax-deferred. Premium contributions to whole life policies purchased at a young age can accumulate substantial value over the long term because the cost of insurance is fixed throughout the policy's duration.

The cash value can even be used as a down payment on a first home. If held long enough, the accumulated amount can supplement retirement income. However, money needs time to grow, so starting early is best.

A whole life insurance policy can be prepaid through a lump sum for a minor—even a baby! When the minor turns 18, the policy can be transferred to the insured person, at which point it can be funded further or cashed in if it has accumulated any value.

The Cost of Waiting

Forgoing life insurance purchases at a young age can be expensive. The average cost of a 20-year level-term policy with a $250,000 face amount is approximately $214 per year for a healthy 30-year-old man. By contrast, the annual premium for a 40-year-old man is about $486. The total cost of delaying the purchase by 10 years is $2,720 over the policy's term.

In addition, waiting to buy life insurance can have a greater impact on your ability to purchase a policy. Medical conditions are more likely to develop as a person ages. If a serious condition arises, the life insurer may assign a higher risk rating to a policy, potentially resulting in higher premium payments or an outright denial of the coverage application.

When is the best time to buy life insurance?

The younger and healthier you are, the lower the cost of a life insurance policy. If you are thinking about starting a family, buying life insurance at that point is often smart, making it more affordable over the long term.

What life insurance should I get when I have a baby?

If you have children, life insurance can provide much-needed financial support in the event of premature death. The death benefit should be large enough to cover all your existing debts and obligations, replace your income during the years your children still depend on you, and also pay for things such as a college education.

When should I buy term life insurance?

Term life insurance can be the most cost-effective option when you need the death benefit for only a limited number of years rather than for your entire life into old age. This depends on each person's individual assessment and financial situation. Speak with an insurance agent or broker for help deciding what is best.

When should I buy life insurance for my child?

Life insurance policies can be purchased for children shortly after birth. A permanent life policy for a young child will carry a much lower premium than one purchased when that person is an adult. At age 18, you can transfer the insurance policy to the child so they have coverage for the future.

Should I buy life insurance when I am young and single?

This depends on whether you think you will start a family in the future. If so, buying insurance while you are younger and it is more affordable is a good idea. You may also want life insurance to establish an estate, donate to charity, or pay debts and obligations at your death, whether or not you are single.

The longer you wait to buy life insurance, the more expensive it will be. Waiting also carries the risk of declining health, which may make you ineligible for some life insurance at that point. When you should buy life insurance depends on your personal and family situation, finances, and obligations. In general, however, life insurance costs less when you are young.

If money is tight, a term life insurance policy can offer your family a financial safety net. If you buy permanent life insurance, holding it for many years gives the policy's cash value component time to grow.