Life insurance is something I’ve put off for a long time.
I’m a millennial, though, and that’s what we do with life insurance – we put it off.
After all there are student loans to be taken care of first. And rent or mortgage payments. And how can we afford a car with all those student loans and other bills like cell phone, utilities, gas…the list goes on.
Yes, there are other spending priorities for millennials. Plus millennials typically believe they will live forever. No one wants to think about “what if” we pass away at a young age.
Even after taking all of this into consideration I think one thing is crystal clear: millennials need life insurance ASAP.
The very reasons millennials put off life insurance – such as student loans and mortgage payments – are why millennials need life insurance ASAP.
Over the past weekend I finally signed up for life insurance through PolicyGenius, and I think other millennials should consider viewing their options on the site as well. But first, here are 7 reasons that millennials need life insurance ASAP.
1) You Have Student Loans
As I mentioned earlier, student loans are typically an excuse that is used to not get student loans. After all, why would you want to take on another monthly expense when that money can be used for loans or other expenses?
In reality it can be very important that you get life insurance if you have student loans. The reason is this: you’re parents or spouse may get stuck with the bill. As illustrated in a CNN story, some grieving parents are stuck with as much as $200k of student loans from a deceased child.
The bottom line is this: if you have student loans, especially if you have private student loans, be sure you have life insurance.
2) Others Depend on your Income
If you have a spouse, children, parents, siblings, or anyone else who depend on your income, you need life insurance ASAP. Life insurance will protect those who depend on you in the unfortunate situation where you pass prematurely.
While it’s not fun to think about, imagine a scenario where your income was immediately gone and you would never make another dime. That’s the situation that your family and dependents will be in if you were to pass. Protecting them with relief in the form of life insurance makes sure that they are taken care of in this worst case scenario.
3) Employer Life Insurance isn’t Enough
Many people believe that they do not need any life insurance beyond the life insurance their employer provides. The problem is most people either do not have life insurance as part of their benefits or they do not take out any additional life insurance beyond the “free” amount that is included in their benefit package.
I will use my work’s base life insurance benefit as an example. I receive $50,000 of life insurance coverage through work. $50,000 isn’t going to cut it.
I strongly agree with Suze Orman’s advice to 20-somethings in her book The Money Book for the Young, Fabulous & Broke where she tells people to get much more life insurance than you think you need. Even if you have zero debt and paid off your mortgage (a rarity in the millennial demographic), you should still have a lot of life insurance.
You never know how a premature death will affect your spouse. It could derail – or even end – their career. I saw this firsthand as a librarian’s husband passed away unexpectedly and eventually she had to resign because of the huge impact it had on her emotionally.
4) Funerals aren’t Cheap
According to the National Funeral Directors Association the median cost of a funeral for calendar year 2012 was $7,045. The cost can range, of course, depending on the funeral.
No one plans for a funeral from a financial standpoint. With funerals already being overwhelming from an emotional standpoint there is no reason to add more stress from a financial standpoint. Life insurance can help with the costs related to a funeral, not to mention replace the income that no longer exists.
5) Signing up when you are young is Cheaper than Waiting
Term life insurance greatly factors in age when a policies rate is calculated. The reason is this: life insurers are hoping that you outlive the policy.
That means someone applying for a 30-year policy at 27 is going to get a better rate than someone who is 37 simply because one terms when the individual turns 57 and the other policy at 67. Similarly, someone who is applying for a 20-year policy at 37 is going to get a better rate than someone applying at 47.
6) Money is tight
As I alluded to earlier, millennials typically put off life insurance because money is tight. There’s a lot of expenses that come with being in your 20s and a ton of pressure for spending above and beyond what you “need.”
I personally think debt and money being tight is a huge reason why millennials need life insurance ASAP. It’s the age where you are most dependent on your significant other’s income and vice versa. Having a spouse pass unexpectedly at 28 will likely be much more difficult financially than having a spouse pass at 48, simply because there has been less time to work, pay down debt, and build savings and investments.
7) The “Ultimate Emergency Fund”
The final reason why millennials need life insurance ASAP is because it’s the “ultimate emergency fund.” With so much discussion and support among personal finance authorities for people to build an emergency fund, it only makes sense that life insurance be brought into the equation.
Cash emergency funds are great, but they are virtually worthless if you or your significant other passes away prematurely and a relatively large income stream is gone. Even a 6-month emergency fund is not that much when something so devastating happens.
When it comes to an emergency fund, it’s foolish to not have life insurance as part of the plan.
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There are many reasons why millennials need life insurance ASAP. I totally understand the reason why millennials do not purchase life insurance – after all, I didn’t seriously look into it until last weekend.
At the very least I encourage millennials to look at what life insurance options are available to them, and at what cost. PolicyGenius makes it extremely easy to compare policies, and it takes just 5 minutes to see what policies are available to you. You can go to their site or use the widget below to get started.
Have you looked into life insurance? Why or why not?
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I first bought life insurance when I started my career, and then bought more when I got married. With Kid #2 on the way, we’re considering buying even more. Five years ago, I would have thought that $1M per spouse was a ridiculous amount, but these days we’re trying to decide if that will be enough ten years from now. While we don’t want to throw money away on over-insuring we really want to provide a lot of security for our families if we die young.
Don’t forget about the fact that whole-term life insurance can be used as a type of investment. Your premium payments build value over time. If you reach old age and have your finances in order to handle funeral costs and cover living expenses for your spouse, then you can always cash out your policy.
We purchased life insurance very early because my husband’s mom died when he was five years old. You just never know.
Count me among those who put life insurance off for a long time. In my mind, there were other financial priorities even though that line of thinking is rather backwards. Plus, thinking about and planning what happens when you die is a depressing topic. My mentality changed when the kids arrived. There is just no way I could leave them and my wife hanging if something were to happen to me.
Harmony@CreatingMyKaleidoscope Good point about whole-term life insurance. I haven’t looked into whole life insurance much, but I’ve actually heard primarily negative things about it. I’ll have to do some more digging into it.
Hannah UnplannedFinance Thanks for sharing your experiences, Hannah. I am in the camp that thinks $1M is actually pretty reasonable, especially if you have kids. $1M is actually what my wife and I will be taking out (getting her set up sometime this month). If one of us passes away prematurely I want 1) all our debt paid off, including our mortgage and 2) a large buffer in case our career/work is derailed from the experience.
PFUtopia It’s definitely a depressing thing to plan for, but it truly is the biggest “emergency” your finances could face. It’s so odd to me that emergency funds is such a popular topic but rarely is life insurance brought into the same conversation.
I completely agree with all of this! And whole-term can be a wonderful option when you’re young. There are just so many policy options, you need to really find a good financial adviser to do the digging for you. Luckily that is what my father does for a living, so we’re pretty set until we have kids – and we have the investment part started early enough where we will see some big gains in the future. The earlier you start, the more your money can work for you. It was amazing to me seeing the charts of the difference just a few years made!
I agree wholeheartedly, DC. Many millennials assume because they are young and typically healthy that it is an expense they don’t need. I understand why they initially think that way but as you have outlined, it’s faulty thinking. People always assume it’s when you start a family that you need to get life insurance but Chris and I were married for 13 years before we had kids and we were definitely insured long before Lauren was even a dream.
MyUrbanFamily In all honesty I don’t think a financial adviser is necessary for this. I think sometimes we try to make life insurance into this complicated beast, but it’s not that difficult to vet policies yourself. Granted this is from my opinion so I’m naturally biased.
ShannonRyan Exactly, Shannon! I have no plans of having kids for at least 7 years, but life insurance is so important for me and my wife. We have debt, and the last thing I want is for either of us to go through something as traumatic as losing a spouse unexpectedly and be stuck with debt and a decreased income.
I never gave a second thought to life insurance until I started a family. It’s a bit awkward to plan for your own demise, but in the end it truly is the “ultimate emergency fund”. I have peace of mind knowing that my family will be financially secure if the worst were to happen.
Financial Tour Guide Yes, that’s what it’s all about – financial peace of mind. I think too many people wait until they have kids to think about this. Even if you just have a significant other, they are almost always really counting on your income now and years and years into the future.
We do carry term life insurance, but just on me as my wife’s still getting her degree. I’m amazed at how cheap it is: it’s costs less to insure my life for a small fortune, than it does to insure my Toyota.
DonebyForty It really is incredible how affordable it is, especially when you think about the size of the potential claim. Then again, it’s an encouraging figure as it shows how unlikely it is that a claim will be paid out.
Couldn’t agree more. We both have term life insurance, it’s really cheap, and I just feel safer having it.
I always suggest people have a specific purpose in mind when determining their insurance needs. My experience has been that people often buy blindly … either too little, too much or not covering the right possibility.
A couple of years ago I purchased some term-life insurance, a 15 year – $350,000 policy as a means of home/retirement protection for my wife. If I should die before the policy expires, February 2029, my beneficiaries will receive the $350,000 — $250,000 to my wife and $50,000 (some pocket money) each to my brother and mother.
My current plan calls for our mortgage to be paid off in 11-12 years; hence the reason for a 15 year policy, which extends beyond that time.
If I should die before February 2029, the $250,000 is enough to pay off the mortgage today – and of course, the balance will only decrease going forward – ensuring that my wife will not have to touch any of the money in our retirement accounts to deal with the house.
RetirementSavvy Looks like you really thought out your life insurance purchase. I like how you have it lined up with your mortgage payoff schedule. I think it’s important to factor in all debt as well as potential for debt to go down over time, similar to how you integrated it into your plan.
Pretend to Be Poor It definitely gives you that “ultimate emergency fund” feeling, and it’s not something you need to continue to contribute to/fill up like a typical cash emergency fund. It’s tough to think of an argument to not get it, as most millennials have debt and little in terms of assets.
I didn’t purchase life insurance until I was in my thirties. There were just too many other bills to pay and it didn’t seem important.
houseoftre I think most take that approach. I hope this post sheds some light on the reasons why it’s important for millennials to prioritize life insurance.
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