If you're in your 20s or 30s, life insurance might not immediately spring to mind as a must-have purchase. Even so, buying a policy when you're just starting out is often a smart step in your overall financial journey—particularly if you're facing a few of these common goals or situations:
Paying off debt
Going to college is a main priority for many young people, with students generally focusing on undergraduate degrees in their 20s and continuing for a master's or doctorate if desired a little later. Problem is, most students can't afford to pay for that education out of pocket. Indeed, least year nearly seven out of 10 graduates walked away with a bachelor’s degree—and nearly $30,000 in debt on average. If something happens to you, and your parents cosigned on your college loans, they may be held responsible for the remainder of the debt. The death benefit from life insurance can be used to pay off the debt and protect them from being stuck with those payments.
Insurance companies use a variety of factors to determine the cost of a policy, but the key elements are your age and health. The closer you are to average life expectancy, the higher the odds are that the company will need to make a payout. Age also increases the likelihood of developing certain diseases and conditions. Those issues can up the odds of passing away earlier and needing to make a claim on the policy. If you buy coverage when you're still young and healthy, you'll likely have lower monthly premiums Opens in new window than if you wait. What's more, paying less each month for many years can end up costing more than paying a higher premium for a short time. So, if saving money is the goal, consider how much risk you're facing.
Many people in their 20s or 30s still have no dependents who count on them for income. But if you get married or have kids, you might want to consider a safety net to help ensure that those loved ones still will have enough money to live comfortably or pursue ventures such as college after you're gone. The same holds true if you're responsible for a disabled or elderly relative, which is becoming increasingly common.
So, suppose you have no dependents. That doesn't mean you don't want to contribute to your community or society as a whole. Instead of naming a loved one as your policy beneficiary, you can indicate you'd like the death benefit from the insurance policy to go to an organization or cause of your choice.