For young adults who are starting a family, life insurance should play a large part in their insurance portfolio. You have to have car insurance and if you have a mortgage on your house, the lender will certainly require homeowner’s, and everybody knows that health insurance is a no-brainer. But, when it comes to life insurance, not everybody agrees how important it is, especially when you’re starting a family.
It’s an easy decision to make, however, just ask yourself how your family will deal with the loss of your income. Can your spouse make the mortgage payment on his or her own? What about monthly living expenses? Does your spouse earn enough to pay living expenses that include all utilities, the cable bill, groceries, diapers, and all the other stuff that seems to drain your bank account every month?
The answer is fairly simple. For most young adults who are starting a family, even if both spouses are working, if one spouse dies unexpectedly, the other is pretty much going to experience financial turmoil after the loss of that income. Fortunately, it’s easy to mitigate this financial risk. Buy life insurance and do it now.
Why Term Insurance?
The short answer is, it’s cheap. In fact, if you’re young and healthy, your term life insurance premium is going to be one of lowest entries in your monthly expense budget. Yes, there are other types of insurance that you’ve probably heard a lot about, and they are great solutions for the right circumstances. But, when it comes to replacing household income, term insurance serves that purpose in the most economical way possible.
The term insurance in the market today is priced very low and it is the perfect solution for financially protecting a young family. Plus, there are a handful of riders (options) that you can add to your policy to broaden the coverage and provide living benefits. You can even add a rider (return of premium rider) that provides for the insurance company to refund all your money if you outlive your policy. And, even more importantly, you can convert most term policies to permanent insurance without worrying about medical issues. These ain’t your daddy’s term policies anymore. You can customize them to meet your unique circumstances and get them to fit in your budget.
How Do I know How Much Insurance to Buy?
This is a great and important question. The old “ten times your salary” rule of thumb is hogwash, it’s a poor guess from lazy people. If your intention is to replace your income, you need to know where your income is going now and down the road. Remember, even if you die unexpectedly, you’re dead forever so you need to consider where you would have to spend your income in the future as well.
Calculating your life insurance needs is easy because there are “insurance needs calculators” available online, and their free. You can do the calculation yourself or ask an experienced independent agent to walk through it with you. Here’s what you’ll need to know:
|
Insurance Needs Question |
Hypothetical Answer |
| Your Income | $50,000 |
| Spouse’s Income | $15,000 (part-time work) |
| Expected Funeral Expenses | $15,000 |
| Mortgage Balance | $180,000 |
| Other Debts (car loans, credit cards, personal loans) | $25,000 |
| Income Needs (typically 70 -80% of current income) | $55,000 |
| Number of Years Needed | 10 |
| Expected College Fund Needs | $50,000 |
| Expected Retirement Investment | $50,000 |
| Total Insurance Needs | $804,413 |
Holy cow! I’m only 25 years old and you’re telling me I should have over $800,000 in life insurance? Only if you want your wife and kids to be able to stay in the home, pay the bills, and do all the other things that your income allows them to do.
Okay, Who’s Got the Best Rates?
Certainly, you don’t want to give an arm and a leg for your life insurance policy. And, like we stated earlier in the article, when you’re young and healthy you won’t have to. Most independent insurance brokers represent all of the top highly-rated carriers. The important thing to know is “they represent them – they don’t work for them.” Using a quote engine, your insurance broker can put your individual information into one form and then generate quotes from every carrier they represent in a matter of seconds.
The reason independent agents represent a lot of companies is that each company has different underwriting guidelines and as a result, their pricing is different for different types of risks (people). So if you are a 30-year old male who’s a little overweight, the agent can find the company that will tolerate that risk better than the others and will offer the lowest rates.
Term Life Quotes from Protective Life
We have found over time that Protective Life offers some of the most affordable term insurance rates in the marketplace, especially for young adults. So then, using the example listed above, we are providing the actual rates for our hypothetical (but pretty common) insurance applicant.
Here are the actual rates for a healthy male or female non-smoker for an $850,000 20-year Term Policy:
After reviewing this chart you’ll notice two things you may not have known before. One, the rates for men are always higher than the rates for women because women typically live longer and the company can collect more premiums over time. Two, every day you put off buying life insurance will cause you to pay more for it.