When you’re young, say, in your 20s or early 30s, you’re in the prime of your life. You’re healthy, have few responsibilities, and have your whole life ahead of you. The last thing you’re thinking about is your mortality and life insurance.
But, believe it or not, buying life insurance at a young age can actually be very advantageous. How? Nobody ever knows when they’re going to die and an accident or illness can occur at any time in life – even at a young age, so buying a life insurance policy when you’re young will ensure that your loved ones are financially protected.
Besides that, however, there’s another reason why buying a life insurance policy when you’re young is a wise idea: Because it can help you safe a tremendous amount of money. If you want to lock in cheap life insurance rates for life, or a long time at least, consider getting a policy earlier rather than later. The younger you are when you buy life insurance, the less you are going to pay. Why? Keep on reading to find out.
How Age Affects Life Insurance Premiums
While there are several factors that will affect the cost of life insurance premiums, there’s on factor that’s extremely critical, and that is age. Let’s explore how being young affects your premiums.
|Young||Older (over age 50)|
|Cheap Premiums||Yes||Probably No|
|High Chance of Approval||Yes||No|
|Longer Time Owning Policy||May pay coverage for some years not needed||Only have policy when needed|
|Effect on Cash Value||Long time to build||Shorter time to build|
You’re Less of a Risk
When a life insurance provider considers whether or not they are going to cover an applicant, they want to know how much a risk that individual is to ensure. The less of a risk you are, the less likely it is that a claim is going to be filed against your life insurance policy. How come? – Because, generally speaking, younger people are healthier than older individuals. To be frank, older people are more likely to develop terminal illnesses and suffer from other health conditions that can increase their risk of dying; and for a life insurance company, the biggest risk that they face is the death of those they insure.
In fact, if you completely lose your insurability due to health concerns, you will have to pay much higher premiums to get a guaranteed issue policy, which is not desirable if you can avoid it. The rates on a GI policy will be multiples higher than a traditional policy (as in 4 to 5 times as expensive per $1,000 of coverage).
The Policy is In Force for a Longer Period of Time
In the insurance world, the term “in force” means that a policy is effective. The longer a life insurance policy is in force, the more money the company that provides your coverage will make off of your policy. Since you’re more likely in good health when you are young, and there’s more of a chance that you are going to live a long life, the longer your life insurance policy will be in force. In other words, the longer the policy is effective, the more money your life insurance provider will make.
How does age apply in this case and why does it make your premiums less expensive? Because the younger an applicant is when he or she purchases a life insurance policy, the less likely it is that the provider will ever have to pay a death benefit; at least that’s the goal. If you purchase a policy when you’re older, it’s more likely that the policy will not be in force for as long a period of time, and hence the reason why premiums are much higher when you apply for a policy when you’re older.
Younger People are Healthier
Obviously, someone who is healthier is going to be less of a risk to a life insurance company. That’s because healthier people are far less likely to die within a short time period after purchasing a life insurance policy than someone who is suffering from poor health. That’s why life insurance providers are so interested in the health of their applicants when they are considering coverage, and why premiums are higher for people who have medical conditions.
How does age affect your health? Generally, younger people are much less likely to develop critical illnesses that can affect their mortality. The majority of ailments that can affect mortality occur later on in life; for example, you’re more likely to develop heart disease when you’re in your 50s than you are when you’re in your 20s. So, since younger people are generally healthier than older individuals, there’s less of a chance that a life insurance company is going to have to pay out a claim; hence the reason why premiums are much lower when you’re younger.
Is Buying Life Insurance Before You Really Need it Necessary?
Someone who is in their 20s, isn’t married, doesn’t have children, and doesn’t own a house may think life insurance isn’t necessary. Sure, you may not have loved ones who are financially dependent on you or have big responsibilities yet; but, it’s probably safe to say that sometime in the future, you will.
Buy purchasing a life insurance policy now, while you’re young, even if you don’t have dependents or own a home, you can save yourself a significant amount of money. And, later on in life when you do have a family, you’ll have peace of mind knowing that they will be provided for in the event that you do die, and you’ll pay less for that protection.
In fact, there is a good reason that life insurance companies sell baby life insurance which is a life insurance policy meant for an infant. It’s not because the baby has an earning power that it needs to protect of course, but because it is an opportunity to lock in low rates for the lifetime of the child (baby life insurance is almost always whole life), and it also does give the parents of the policy financial protection from the death of a child in a worst case scenario. Regardless, even at the tender age of an infant, by purchasing a life insurance policy for the child the parent will guarantee insurability, lock in low premiums, and gift the child a financial instrument which can provide a source of savings and cash for the rest of their life.
Policy Value Builds over Time
In fact, when most people who are not insurance agents or wealth managers think about life insurance, they think about term life. A whole life insurance policy is still a valuable instrument, that can provide a low risk consistent rate of return for a lifetime. It also is a considerable source of savings and has tax advantages if you need access to the cash. If you purchase a permanent life policy at a younger age, it will magnify your rate of return and total savings over time. The premium payments will be more efficient in terms of their increase on policy value, and you have the option of lower premium payments overall.
If you purchase a whole life policy when you are young, you should have a policy worth thousands or hundreds of thousands of dollars when you are older.
Don’t Forget the Growing Dividend
If you are buying a whole life insurance policy, you will have lower rates for longer for another reason. As your dividend rate grows over time in relation to your premium payment, you can eventually pay your entire premium with the dividend alone, if you choose. This will make your premium payments free eventually.