When it comes to buying life insurance, there are two key questions people need answering before they complete an application: Do I need it? and When should I buy it?
Jump ahead to these sections:
- Is There a Specific Age When You Should Buy Life Insurance?
- In What Situations Do People Typically Buy Life Insurance?
- Can You Be Too Young or Too Old to Buy Life Insurance?
- The Cost of Waiting to Buy Life Insurance
- Why Don’t People Buy Life Insurance?
- How to Buy Life Insurance
Judging by the sheer number of people who buy life insurance every year, most people believe that life insurance is integral to their financial plan. So they’ve answered the first question – they think they need it.
It’s the second question that people wrestle with most. Most people don’t get out their calendar one day and say, “Today’s the day. I’m going to buy life insurance.” Instead, they put it off, and the price goes up every time they celebrate a birthday. There just aren’t any clear-cut rules about when you should buy life insurance.
If you’re unsure of the best age to buy life insurance, this article is going to answer that question for you. We’ll look at the ages and events that motivate most people to complete an application, and we’ll look at the repercussions for waiting too long to buy a policy. Our goal is to help you decide when the best time will be for you to purchase coverage.
Is There a Specific Age When You Should Buy Life Insurance?
Life insurance companies and their agents who make a living selling life insurance would love it if the answer to this question was “yes.” Unfortunately for them, the correct answer is “no,” there is no specific age when you should buy life insurance. It would make life a lot easier for all of us if it were that cut and dry.
But, everyone’s financial life develops differently. Some people remain students into their late 20s or beyond, have no one financially dependent on them, and have no personal debt that someone else would be saddled with if they died. Hence, they have no financially sound need to buy life insurance.
Other people get married and start a family at an early age. They have a family that depends on their income to keep a roof over their heads and food on the table. If they died without life insurance, their family could face financial ruin. Financial advisors would strongly recommend that people buy life insurance at this stage of life.
So, it’s apparent that the need to buy life insurance is situation-driven, not age-driven.
In What Situations Do People Typically Buy Life Insurance?
Life milestones most often dictate the age at which people decide to buy life insurance. Let’s look at four of them.
Milestone #1: When they get married
Getting married is often when people begin making financial decisions based on multiple incomes. Most newly-married couples depend on both spouses’ paychecks to pay the mortgage or rent, pay utilities, make car payments, pay off student loans, and meet all of the other financial obligations that are part of life.
The death of one of the spouses would likely make it impossible for the surviving spouse to continue maintaining the standard of living that they enjoy. The spouse who is left behind would probably need to move to a less expensive home or apartment, sell a vehicle, and make other significant adjustments to their lifestyle.
Buying life insurance when they get married is a financial sacrifice couples make to ensure that their partner will have the opportunity to continue living the way they’ve become accustomed to. It doesn’t mean they’ll ultimately choose to do so, but they’ll at least have options.
Milestone #2: When their first child is on the way
If they didn’t buy life insurance when they got married, many people purchase life insurance when they learn their family will be adding a new member. A new child means new expenses that will need to be paid for years to come:
And many more costs of raising a child that will continue if one or both parents die before the child is financially independent. As a result, parents often wish to have life insurance coverage to make sure all of the financial needs of their children are provided for and that the surviving spouse will be able to pay for the needs of a young child, like daycare and other childcare costs.
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Milestone #3: After buying a home
Many people buy life insurance when they have a new mortgage. They often purchase term life insurance policies with a coverage period that matches the length of the mortgage, like 15, 20, or 30 years. The policy’s death benefit will leave a paid-off home to the surviving spouse and other family members.
Milestone #4: After starting a business with partners
When two or more people start a business together and form a partnership or some other type of legal business entity, decisions need to be made concerning the company's future after one of the partners dies.
It often makes sense for surviving partners to buy out the interest of the partner who has passed away and fund that buyout with life insurance. Through a legal document called a “buy-sell agreement,” the deceased partner’s family will be paid for their share of the business.
This also allows the surviving partners to continue to run the business without interference from the spouse, or other family members, of the deceased partner, who may or may not have an interest in being involved in the daily activities of the business.
Can You Be Too Young or Too Old to Buy Life Insurance?
Most life insurance companies won’t issue a policy on a newborn until they are at least 14 days old. They also won’t issue a policy to someone age 85 or older. Statistically, the financial risk is much greater than the reward for insurers at these ages.
Life insurance companies are proponents of the strategy that every man, woman, and child should have life insurance, and the best time to buy is when you are young and healthy. From a cost standpoint, it’s difficult to argue with this.
For example, a parent of a 15-day old baby can buy a $50,000 whole life insurance policy on the child's life for $10 to $50 per month (depending on the insurer). In comparison, an 80-year-old buying a $50,000 whole life policy could easily have premiums that exceeded $500 per month (again, this will vary by insurer and the insured's health).
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The Cost of Waiting to Buy Life Insurance
There are downsides to waiting to buy life insurance, including:
Policies get more expensive. Life insurance premiums are based on the age at which a policy is issued, and the yearly price increases get bigger as you get older. Buying life insurance when you’re younger locks the rate in if you buy a permanent type of life insurance, such as whole life insurance or universal life insurance
Greater chance of being denied coverage. As we get older, our chances of having a physical disorder that would result in our application for life insurance being declined increase. Certain medical conditions can make it very expensive, or impossible, to buy life insurance.
Leaving loved ones at risk financially. If you have people that depend on your income, dying without life insurance can have a tragic outcome. The last thing most people want is for the people they care about most to have to sell their home or for their kids to be unable to afford college.
Why Don’t People Buy Life Insurance?
The main reason people don’t buy life insurance is procrastination. They get busy and put it off. Most people are well aware that they need life insurance, especially during their working years and if they have kids, but it’s easy to let life get in the way, and buying life insurance becomes another item on the to-do list that keeps getting pushed to the bottom.
Many people also resist buying life insurance because they don’t want to think about dying. It is a very sensitive topic and makes many people very uncomfortable.
A final reason people don’t buy life insurance is the cost. After paying premiums every month for car insurance, health insurance, homeowner’s insurance, and every other type of insurance marketed to them, many people consider themselves “insurance poor.” They struggle with the idea of writing another check to another insurance company for another policy. However, once they get quotes on term life insurance, many people find that life insurance for young adults is surprisingly affordable.
How to Buy Life Insurance
The question at what age you should buy life insurance is an important one, but it’s also essential that you know the best way to purchase life insurance. Here are four steps you can follow to make sure you get the right coverage:
1. Determine how much coverage to buy. A financial advisor or life insurance agent can help you figure out how much life insurance you need. Many life insurance companies also have online “life insurance calculators” that will help you assess the amount of the death benefit your survivors would need.
2. Select the correct type of policy. There are two primary types of life insurance to select from: permanent life insurance, like whole life and universal life, and term life insurance.
Term life is temporary coverage to protect you for a specific need, like paying off a mortgage or funding your kid’s education when you die. If you outlive the policy’s term, the policy will expire worthless. Term life is less expensive than permanent life insurance.
Permanent life insurance costs more than term life because it pays a death benefit when you die and accumulates cash value, which can be likened to a savings account. Premiums for permanent life insurance don’t increase, and you can keep the coverage for your entire life as long as you continue to pay the premiums.
3. Submit an application. Get with a licensed life insurance agent or apply online once you’ve decided the type and amount of coverage you need. Depending on the size of the death benefit and who the insurer is, you may need to undergo a medical exam in addition to answering the health questions on the application.
4. Read the fine print when you get your policy. For example, be sure the coverage and premium amounts are correct, and the proper beneficiaries are listed. Also, check and make sure there are no limitations or exclusions listed in the policy.
Don’t Delay Once You Decide to Buy Life Insurance
Once your application is approved, your policy will go into effect, and your loved ones will be protected. However, having your application reviewed and approved can take time, so plan accordingly when you decide it’s time to get coverage.