When is the best time to buy life insurance?
The right time to buy life insurance can depend on several factors, such as your dependents, family situation, and financial circumstances. A general rule to keep in mind is that if others depend on your income, you should buy life insurance. This is also true if you have debts that would otherwise fall to your dependents in the event of your death. Life insurance can provide stability for your dependents or prevent them from having to shoulder your remaining debt. But when is the best time to buy life insurance?
To get to the point, younger is always better. In this blog post, we'll explain why.
Why is younger always better?
The earlier you buy life insurance, the better. Why? Because with each passing year, your life insurance becomes more expensive. At a younger age, you qualify for lower premiums and are less likely to experience debilitating health problems that could make you harder to insure or result in significantly higher premiums.
You might hesitate if you're a younger person already facing a number of outstanding bills or debts that need to be repaid. Whether it's mortgages, student loans, car payments, or more, many young people worry about buying life insurance because, for them, it's just another payment to add to the list. However, by postponing it, you might be setting yourself up for a much larger expense later! This can have a significant impact on your finances.
Term life insurance vs. permanent life insurance
Now, when it comes to the actual purchase, you have two options: term life insurance and permanent life insurance. What's the difference? Which one should you buy?
Term life insurance is a life insurance policy that covers you for a specific period of time. Generally, it's best for younger people to purchase this type of policy, but the term can also begin depending on when you expect to have dependents. You want this policy to last as long as you anticipate having people dependent on your income. If your dependents are children, your term can end when they reach adulthood. If you don't have children but live with a partner or spouse, you might want your policy to cover you until you can pay off your mortgage. Even if you don't earn an income but have people who depend on you for childcare or other work, you may still want coverage because your care might need to be replaced with paid services in the event of your death.
Term life insurance is generally the preferred option for the general population because it is less expensive, offers temporary protection that can usually be renewed and, if your insurance broker offers you the opportunity, you can convert it to permanent life insurance when your financial situation is stronger.
On the other hand, permanent life insurance is a general term used to describe a life insurance policy that does not expire like a term life insurance policy. In most cases, your typical permanent life insurance policy will combine a death benefit and savings. Permanent life insurance can be whole or universal. The difference is that whole life insurance provides coverage for the insured person's entire life, and the savings will grow at a specific rate. Universal life insurance offers a death benefit and savings, but the premium structures are different, and the returns are based on market conditions and performance. To build up adequate savings, perhaps even enough to supplement retirement income, it's best to start purchasing permanent life insurance early.
Permanent life insurance may be preferable to some despite its higher cost, as it creates cash surrender value over time and benefits from favorable tax treatment of policy income.
Waiting vs. buying early
If you're still undecided, consider this: purchasing a term life insurance policy at age 30 with approximately $200,000 in coverage can cost twice as much as if the same amount were purchased by a 40-year-old. Essentially, delaying the purchase of your term life insurance policy for a decade could cost you an additional $2,000 over the life of the policy.
Furthermore, waiting to purchase your policy could actually reduce your chances of being insurable. The older you get, the more likely you are to develop health problems, and a serious health condition can lead to much higher premium payments, or even a denial of coverage. While some insurance companies do cover people over 50 and some with certain medical conditions, it is much more difficult and expensive to obtain coverage.
If you've ever asked yourself, "Would my death cause financial hardship for anyone?" and the immediate answer is "yes," then you should seriously consider purchasing a life insurance policy. This can provide peace of mind and give your loved ones a sense of security, knowing that in the unfortunate event of your passing, they will be taken care of. Only then should you consider purchasing term or permanent life insurance.