Finding the Best Life Insurance for Young Adults: Comparing Your Options

Life insurance is not something that most young adults think about. However, getting life insurance while you’re young and healthy can save you money in premiums down the road. Here’s an in-depth look at the different types of life insurance available to young adults, along with tips for choosing the right policy.

Why Young Adults Should Consider Life Insurance

There are several reasons why getting life insurance in your 20s or 30s is a smart financial move:

• Lock in lower premiums – Life insurance rates are based on your age and health. The younger and healthier you are, the less you will pay for the same coverage. Getting life insurance when you’re young locks in lower premiums for the life of the policy.
• Protect future insurability – If you develop any health conditions as you get older, you may have to pay more for life insurance or even get declined. Getting coverage when you’re young and healthy avoids this risk.
• Prepare for the unexpected – Tragedies can strike at any age. Life insurance provides your loved ones with financial support in case of your unexpected death. This is especially important if you have kids or others depending on your income.
• Build cash value – Some types of life insurance, like whole life, accumulate cash value that you can borrow against. Buying earlier maximizes this value.
• Lock in coverage – Term life insurance is purchased for a set period of time (like 10 or 20 years). Buy early to lock in your insurability for the length of the term.

Comparing Different Types of Life Insurance

There are several types of life insurance policies available to young adults. The key options include:

Term Life Insurance

Term life insurance provides coverage for a set period of time, such as 10, 20 or 30 years. It pays out a lump sum (known as a death benefit) only if you die within the term.

Pros

• Low cost – Term policies have the lowest premiums of any life insurance.
• Customizable terms – Choose a term length that meets your needs, like covering until kids are adults.
• Large payouts – Term policies can provide payouts in the millions fairly affordably.

Cons

• Not permanent – Coverage ends if you outlive the term length.
• Premiums increase – Rates go up each time you renew your term policy.
• No cash value – Term life does not earn equity or interest like some permanent policies.

Term life insurance makes the most sense for young adults who need temporary coverage for family income replacement. A 20 or 30 year term allows coverage until retirement age.

Whole Life Insurance

Whole life insurance provides permanent coverage for your entire life, as long as you keep paying the premiums. It also earns cash value that you can borrow against.

Pros

• Lifelong coverage – Whole life policies pay out no matter when you die.
• Cash value – The policy accumulates cash value that you can borrow against.
• Fixed premiums – Your rates do not go up over the life of the policy.

Cons

• Much more expensive – Premiums are 4-10X higher than term life premiums.
• Less death benefit – For the same premium, term life provides a much higher payout.
• Less flexible – Harder to cancel whole life policies compared to term.

Whole life insurance can make sense if you need permanent coverage and want to leverage the cash value. However, it comes at a steep premium cost.

Universal Life Insurance

Universal life insurance is a hybrid policy that combines permanent coverage with a cash value component. The premiums and death benefit are adjustable.

Pros

• Flexible premiums – You can raise or lower your premium payments as needed.
• Cash value growth – Earn interest on the policy’s cash value.
• Customize coverage – Adjust the death benefit as your needs change.

Cons

• More expensive – Still costs more than comparable term life insurance.
• Risky growth – Returns are not guaranteed, cash value could decrease.
• Complex fees – Numerous fees make the policies harder to navigate.

For those wanting permanent coverage with cash value growth, universal life offers more flexibility. However, returns are variable and fees can eat away at gains.

Other Types

There are a few other life insurance options that may suit some young adults:

• Group life – Provided by employers, typically 1-2x your salary.
• Mortgage life – Covers the balance of your mortgage only.
• Annuities – Insurance products that provide guaranteed income.

However, these tend to pay limited death benefits compared to individual term or whole life policies.

Comparing Life Insurance Rates by Age

Life insurance rates are heavily influenced by your age at the time you purchase coverage. Here is an illustration of how much term life insurance costs at different ages for a 20-year $500,000 policy:

As you can see, premiums more than quadruple between ages 25 and 50 for the same $500,000 coverage.

The increases are even more dramatic for whole life insurance. Here is a comparison of annual whole life premiums at different ages:

The annual cost for a whole life policy jumps from 3,200 at age 50 – a 19X increase!

This illustrates why buying life insurance sooner than later saves you substantially on premiums.

Choosing the Right Type & Amount of Coverage

When shopping for life insurance in your 20s or 30s, here are some tips for choosing the right policy:

Consider term life – For most young adults, term life insurance makes the most sense. It provides powerful temporary coverage at the lowest cost. Look for a longer term length until at least age 50 or 55.

Get 10-20X income – Aim for a death benefit that is 10 to 20 times your annual income. This provides enough for your family to pay off debts, cover funeral costs, and replace your income.

Name beneficiaries – Determine who should receive your death benefit and name them as beneficiaries. Often a spouse, children or parents.

Check group rates – If your employer provides group life insurance, compare the rates with individual policies. Group coverage is often cheaper.

Go through a broker – An independent broker gives you quotes from multiple insurers to find the best rate available.

Lock in young rates – Apply for coverage during your 20s or early 30s to lock in the biggest savings on premiums.

Frequently Asked Questions

How much does life insurance cost for a 25 year old?

For a healthy 25 year old, term life insurance with a 150-25 per month.

Should I get term or whole life insurance?

Term life insurance is the better option for most young adults due to its affordability and ability to provide high coverage amounts. Whole life is expensive in your 20s and 30s. Go with term for temporary needs.

What medical tests are required for life insurance?

Insurers may require a medical exam, blood draw, and potentially other tests for permanent policies like whole life insurance. However, many term life policies only require a medical questionnaire for approval up to certain limits.

How long should my life insurance term be?

Look for term lengths of at least 20-30 years. This covers you until your 50s or 60s when insurance needs decrease. Anything shorter may require higher rates once you renew the policy.

Can I get life insurance with a pre-existing condition?

Yes, life insurance is available even with pre-existing conditions like diabetes or heart disease. You may pay higher premiums, but coverage is still attainable in most cases. Talk to an independent broker.

The Bottom Line

Life insurance in your 20s and 30s locks in low rates you can’t get later in life. For most young adults, a 20 or 30 year term policy that covers 10-20 times your income is the most cost-effective option. Shop around and compare quotes to find the best rate for your budget and needs. The peace of mind is well worth the small investment.