What is the best time to buy life insurance?
The proper time to purchase life insurance can depend on a few scenarios, such as your dependents or family circumstances, and your financial situation. A general rule of thumb to keep in mind is that if other people are dependent on your income, you should purchase life insurance. This is also true if you have any debt that would otherwise carry on to your dependents in the event of your passing. Life insurance can ensure stability for your dependents – or prevent them from having to deal with your leftover debt. But “when” is it best to buy life insurance?
To come to the point, younger is always better. In this blog post, we will explain why.
Why does younger = better?
The sooner that you purchase life insurance, the better. Why? Because with every year that passes, your life insurance becomes more expensive. At a younger age, you are eligible for lower premiums and are less likely to have any debilitating health conditions which could make you more difficult to insure or result in far more expensive insurance premiums.
You may hesitate if you are a younger person who is already facing a number of ongoing bills or debts that need be paid off. From mortgages, student loans, to car payments and more, many younger folk worry about purchasing life insurance as, to them, it’s just another payment to add to the list. However, by putting it off, you may be setting yourself up for a much higher expense later down the line! It can have a significant impact on your finances.
Term life insurance vs. permanent life insurance
Now when it comes to the actual purchasing, you have two options: term life insurance and permanent life insurance. What is the difference? Which should you buy?
Term life insurance is a life insurance policy that covers you for a specific term. Generally, younger people are better off purchasing this policy, but the term can also start based on when you expect to have dependents. You want this policy to last as long as you feel there will be people depending on your income. If your dependents are children, your term may end when your kids are adults. If you do not have children but are living with a partner or spouse, you may want your policy to cover you until you can pay off your mortgage. Even if you do not earn an income but you have people who depend on your for childcare or other labour, you may still want coverage as your care may need be replaced by paid services in the event of your death.
Term life insurance is generally the preferred option for the general population as it is less expensive, offers temporary protection which can generally be renewed and, if your insurance broker offers the opportunity, you can convert it to permanent life insurance when your financial situation is more sound.
Permanent life insurance, on the other hand, is a broad term used to describe a life insurance policy that does not expire like a term life insurance policy does. In most cases, your typical permanent life insurance policy will combine a “death benefit” and a savings. Permanent life insurance may be whole or universal. The difference here is that whole life insurance offers coverage for the full lifetime of the person being insured, and savings will grow at a specific rate. Universal life insurance offers a death benefit and savings, but the premium structures are different and the earns are based off of market conditions and performance. To grow an adequate savings, possibly even enough to supplement retirement income, an early start for purchasing permanent life insurance is preferable.
Permanent life insurance may be preferable to some despite its higher cost because it builds cash value over time and has favourable tax treatment of policy earnings.
Waiting it out vs. buying it early
If you are still on the fence, consider this: purchasing a term life insurance policy as a 30-year old with around $200,000 of coverage may be twice as much if the same amount was purchased by a 40-year old. Basically, the cost of delaying the purchase of your term life insurance policy for a decade can cost you an additional $2,000 for the duration of the policy.
Furthermore, by waiting out the purchase of your policy you may even decrease your odds of being insurable at all. You have greater odds of developing medical conditions the older you get, and a serious medical condition can result in much higher premium payments or even the denial of coverage altogether. While there are insurance companies that will insure individuals over 50 and some with certain medical conditions, it is a lot more difficult to do and is much more expensive.
If you are asking yourself the question, “would my death cause anyone to be left behind in financial trouble?” and the immediate answer is “yes” then you should seriously consider purchasing a life insurance policy. This can secure your peace of mind and give your loved ones a sense of security knowing that in the unfortunate scenario where you should pass, they will be taken care of. Only then should you consider purchasing term vs permanent life insurance.