Updated April 29, 2019

Life Insurance for Young Adults

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Life insurance isn't just for your parents and grandparents. The best time to purchase is when you're young and healthy. So should you buy life insurance? Read on.

As a person in your 20s, you probably aren't thinking about life insurance. But getting coverage is easier - and cheaper - now. And some types of coverage will last your entire life.

Where can you get life insurance? How much does it cost? How you can get started? We answer all your life insurance questions below.

I'm Young - Do I Really Need Life Insurance?

Hopefully not but no one can predict the future. You may experience an illness, a fatal car accident, or other unexpected event. Life insurance offers financial protection if the worst happens.

If you die, someone will need to pay expenses like:

  • Student loans
  • Credit card debts
  • A mortgage

We'll cover those in more depth below. But it's important to remember that your spouse, children or others who rely on you may end up paying those outstanding bills.

Benefits of Buying Life Insurance Young
Premiums will rise every year because the insurance company takes on more risk by insuring you as you age. That means you're likely to get the best possible price on coverage now.

What Are the Different Types of Life Insurance?

There are two primary options for life insurance:

Term
Provides coverage for a certain number of years or a specified "term." This type of insurance policy is designed to protect your dependents should you die prematurely. It tends to be cheaper than whole life.

If you die within the term, your beneficiaries receive the full payout or "death benefit." The most common terms are 10, 20, and 30 years.

Whole
Provides lifelong coverage and includes an investment component. The premium typically stays the same as long as you live.

A whole life insurance payout amount is guaranteed no matter when you pass away during the policy's coverage. While the premiums are higher, the policies have actual cash value that grows year over year.

For a deeper comparison of these two options, check out Term vs Whole Life Insurance

So which is right for you?

  • Choose term if you need life insurance only to replace your income over a certain period, such as the years you're raising children or have an outstanding mortgage.

  • Choose whole if you:
    1. Want to provide money to your heirs to pay estate taxes
    2. Have lifelong dependents such as a child with special needs
    3. Want to spend your retirement savings but still leave an inheritance for your beneficiaries.

Other Life Insurance Choices

You can also buy Universal and Variable life insurance.

Universal Life Insurance
Provides a permanent death benefit and has added cash value. When you pay your premiums, part of the dollars go into a cash account that is credited each month with interest, and part goes towards paying the death benefit.

Your premiums are not fixed, so the amount you pay each month can change month-to-month. But, you have more control and access to the dollars that go into the cash account.

Variable Life Insurance
Part of your premium is contributed to a cash account. The difference in Variable is that the cash value can be invested in a variety of different accounts, similar to mutual funds, and the choice of which accounts to invest in is up to you.

Examples of investment funds are stocks, bonds, equity funds, and money market funds.

Many experts recommend a Term insurance policy. It's more affordable and provides coverage only during the years you need it, like when you are raising children or have loans or other debts.

What Does Life Insurance Cover?

Life insurance coverage can provide financial assistance to cover all kinds of expenses, including:

End of life costs
Believe it or not, even dying costs money. And if you die young, you may leave behind debts. This may include thousands in medical bills and funeral expenses.

Consider the cost of:

  • Copays
  • Coinsurance
  • Deductibles

Did You Know? The average funeral costs between $7,000 and $10,000 today, according to the National Funeral Directors Association.

Student loans
The average student loan debt ranges from $28,000 and $40,000, depending on the year you graduated. In 2017, over 44 million Americans collectively owed nearly $1.5 trillion in student loan debt.

Credit Card Debt
The average American has a credit balance of nearly $6,500, according to Experian's annual study on the state.

Mortgages
The average monthly rate is about $1,500 (for a total of $18,000 per year).

Life insurance can also provide for your family when you no longer can.

Average Cost of Life Expenses
New Home:$322,637
New Car:$34,740
Sending a Kid to College:


Private - $34,740
Out-of-State - $25,620
In-State - $9,970
Family Health Insurance:Per-Year - $14,016
Yearly Child Care:Per-Child - $10,000

What Does Medically or Non-Medically Underwritten Mean?

When you apply for life insurance, most insurance companies require a medical exam. This includes meeting with a medical professional who will:

  • Ask in-depth health questions.
  • Take your height and weight.
  • Get a blood pressure reading and pulse/resting heart rate.
  • Take blood and urine samples.

The insurance company will determine the risk they take on by accepting your application and approving your policy.

The higher your risk, the more likely it is that you will pass away before paying the full coverage amount. That means a higher monthly premium for you.

The lower your risk, the more likely it is you will pay off your full coverage. That means a lower monthly premium for you.

Keeping yourself healthy is one of the best ways to get a lower monthly premium. For tips on how to prioritize your health and wellness, be sure to check out this blog from GenTwenty.

If the results of a medical exam reveal a health condition or chronic illness, you could be denied coverage. Some companies and coverage let you skip the exam. This may be tempting, particularly if you:

  • Have a chronic condition or illness
  • Are a smoker
  • Have a dangerous job or hobby

If a medical exam would make your coverage more expensive or even prevent you from getting coverage, a no-exam policy might be the way to go. Also, bypassing the exam typically means underwriting decisions are quicker, which makes this type of coverage more attractive.

No medical exam policies typically cost more and provide less coverage than a medically underwritten policy because there is less knowledge on the risk the insurance company is taking by insuring you. Read on to learn more.

Guaranteed and Simplified Issue Insurance

There are generally two different types of no medical exam insurance: Guaranteed Issue and Simplified Issue.

Guaranteed Issue
When you apply for this policy, underwriters do not even get to see your medical records. This means the insurance company knows little about the risk your policy would present, though this also means this policy generally costs the most.

When you apply, the insurance company will ask you a variety of generic, yes/no questions like:

  • Do you smoke or use tobacco?
  • Are you currently residing in a hospital?
  • Do you have HIV or AIDS?
  • Have you been declared terminally ill?

Based on those answers, the company will decide whether to insure you or not. Underwriting often happens and coverage is obtained within 24-48 hours.

If you are approved, your policy will likely come with a graded death benefit. This means if you were to pass away within the first two or three years of owning the policy, your beneficiary would only receive a refund on the premiums you paid, along with interest.

If you live beyond three years and continue to pay the premium on the policy, your beneficiary would then qualify for the full death benefit amount.

Because you did not give access to your medical records or take a medical exam, this graded death benefit is to ensure you didn't lie on your application. Graded death benefit is to ensure you didn't lie on your application. It protects the insurance company from significant financial loss on your policy.

Simplified Issue
This is also known as "final expense insurance." With this type of policy, you do not take a medical exam, but underwriters will ask more thorough questions and have access to your medical records. Depending on your answers to the questions and your medical records, you may not be approved for coverage.

Common Underwriter Questions:

  • Are you currently employed and have you actively and continuously participated in the duties of your regular occupation on a full-time basis for the past 6 months?

  • Within the past 24 months, have you used or are you using narcotics, amphetamines or any controlled substance, other than on the advice of a physician?

  • Are you now receiving or in the past 12 months have you received chemo or radiation therapy for cancer?

  • Do you require any assistance with bathing, dressing, toileting, indoor or outdoor mobility, eating, or do you use oxygen?

These questions are meant to be more in-depth and telling of your health and medical conditions.

While this policy is typically not as expensive, it still costs more than medically underwritten policies.

To learn more about non-medically underwritten life insurance, read:
No Medical Exam Life Insurance.

When Should I Purchase Life Insurance?

Again, the best time to purchase life insurance is when you are young and healthy.

If you are buying a house, getting married, and/or having children, it's time to consider talking to a life insurance agent.

If you have co-signers of loans or large amounts of outstanding debts, having a life insurance policy in place can provide peace of mind and financial protection for your family.

If you aren't sure if you are ready for life insurance, you can talk to a life insurance agent. They will be able to answer your questions and help you determine if you need coverage, what type, and how much.

How Do I Determine What Type of Coverage Is Right for Me?

When thinking about coverage and deciding how much you need, the simple way to calculate your potential coverage amount is:

  1. Consider how many years you would like coverage, and multiply your annual income by that number of years.

    Amount = Coverage Years × Annual Income

    If you want a 10-year term policy and earn $60,000 per year, you'll want a minimum $600,000 policy.

  2. Think about other financial obligations you want your policy to cover. Such as:

    • Funeral Costs
    • Mortgages
    • Student loans
    • Credit card debt
    • Medical bills
    • Child care costs

    Add these totals to the sum found in Part 1.

  3. Determine what services you provide that would have a cost to replace.

    This is particularly important if you are a stay-at-home parent and your partner wouldn't be able to quit their job to provide the services you do. Add the replacement cost to the sum of Parts 1 and 2.

  4. Do you have any savings or life insurance through a current employer? You'll want to subtract those totals from your determined policy amount.

Most places of employment offer a life insurance policy when you are employed full-time. While you should participate in those policy offerings, most employers provide only 1-3 times your current salary, so it's likely the coverage isn't enough for what you'll need. Also, if you leave that job, you lose the coverage.

A quick internet search will provide several options for life insurance calculators, which will ask you questions and calculate numbers to give you a good estimate of how much coverage you may need.

Can I Even Afford It?

The short answer is likely yes.

There are a number of factors that affect your monthly premium. Typically, monthly premiums increase the older and unhealthier you are. Factors include:

  • Age
  • Sex
  • Health
  • Smoking Habits
  • Hobbies

The higher your risk, the more likely it is that you will pass away before paying the full coverage amount, so the higher your monthly premium is.

The lower your risk, the more likely it is you will pay off your full coverage, so the lower your premium is.

How do I get the best life insurance rate?

Apply and Purchase Now
Because age and health are such important factors, you want to make sure to take advantage of applying for a policy when you are most likely to get the best rate.

Get Multiple Quotes
Each insurance company offers different types of policies, benefits, and coverage, so you want to make sure you know what companies offer what you need. Getting multiple quotes allows you to see a variety of premium options so you can choose one that fits your budget.

Involve an Insurance Agent
They are able to assist you with your research and the quoting process. Because they are the insurance product and company experts, they likely know what company and/or policy fits your needs best with the best rate.

The charts below provide an average monthly cost for different life insurance policy options. Each is sorted by male and female and is based on a generally healthy non-smoker.

$250,000 Policy for 20 Year Olds
 Policy Type Male Monthly Cost  Female Monthly Cost 
Term 10 Year$12.50$9.62
Term 15 Year$13.14$10.65
Term 20 Year$13.57$12.09
Term 25 Year$16.42$13.75
Term 30 Year$20.53$18.49
Whole Life$109.42$96.00
No Exam 10 Year$13.92$10.34

$250,000 Policy for 30 Year Olds
 Policy Type Male Monthly Cost  Female Monthly Cost 
Term 10 Year$12.50$10.34
Term 15 Year$13.14$11.68
Term 20 Year$14.57$13.31
Term 25 Year$16.83$14.25
Term 30 Year$21.62$19.45
Whole Life$165.83$134.25
No Exam 10 Year$19.81$11.40

Where Should I Purchase a Policy?

There are more than 800 life insurance companies operating in the U.S. Once you are ready to buy a policy, how do you know which company to choose?

We researched dozens of life insurance companies and ranked them based on what we believe to be your best options. The companies listed as our Top 10 companies are ranked based on:

  • Products Available
    We looked at what types of policies were available (term, whole, universal, variable) and how many options there were. We also looked at other features, like Additional Riders, that gave more options to consumers.

  • Customer Service Ratings
    We used J.D. Power Insurance Ratings to determine which companies were ranked highest in customer service. Ratings are based on the opinions of sample consumers who have used or owned a product or service being rated.

  • Price
    Quotes were gathered for a 35-year-old male and female non-smoker in good health for a $250,000, 20-year term policy. Male was 6'0", 200 lbs., and female was 5'7", 175 lbs. We also use J.D. Power ratings and reported the cost on each company's website.

  • Financial Strength and Insurance Ratings
    For each company listed, we analyzed the financial strength reported by each company. We also looked at the scores reported on by A.M. Best, Moody's, Standard & Poor's, and Fitch.

Top 10 Life Insurance Companies
 CompanyA.M Best Moody's S & P Fitch 
New York LifeA++AAAAA+AAA
Northwestern MutualA++AAAAA+AAA
ProtectiveA+A1AA-A+
Mutual of OmahaA+A1A-N/A
PrudentialA+A1AA-A+
American NationalAN/AAN/A
AssurityA-N/AN/AN/A
TransamericaA+A1A-A+
ForestersAN/AN/AN/A
LincolnA+A1A-A+

Once you decide on a few companies that have the options you need, it's time to quote and purchase a policy.

How Do I Purchase a Policy?

There are three steps involved with purchasing insurance:

  1. Get a Quote
  2. Talking to an Agent
  3. Purchasing a Policy

Get a Quote
Calculate how much coverage you think you need by following the steps listed above and be prepared by knowing some general medical information such as height, weight, blood pressure, and cholesterol levels.

Most companies offer you the ability to either request a quote or get a quote online.

  • Request a Quote
    Enter and submit basic contact information, which is provided to a life insurance agent. The agent will follow up with you via phone or email (depending on your preference).

    They will ask questions like why you need life insurance, what kind of coverage you are looking for and for how long, and other informational policy questions. Once they get all of the information, they will get quotes for you from different companies that best fit your needs.

  • Get an Online Quote
    You will answer questions like your gender, date of birth, height and weight, coverage amount you are considering, and other basic, simple health questions.

    You will have to do this for every company you are considering. Once you submit the information, you will either be emailed or immediately shown a quote.

Talking to an Agent
Another option is to go solely through an insurance agent. You provide them with all of your contact and health information and they request the quotes for you. With this option, you don't have to do anything online or yourself.

We recommend working with an independent agent. They typically represent several insurance companies or carriers. As such, they can offer quote with different carriers and sell products that are best for you and your budget.

You can also choose a captive agent. These work for one insurance company. While they are insurance experts, captive agents cannot give quotes from different companies to find the best premium options for you. Their company also might not offer the type of policy or specific coverage you need.

Once you decide which quote and company are right for you, you'll submit an application for the policy. You'll be asked to answer questions such as your age, marital status, occupation, and basic health history.

Purchasing a Policy

There are basically three ways you can purchase life insurance:

  1. Directly from an Insurance Company
    While this route typically ensures buying from a large, reputable insurer, it also may not get you the best price.

  2. Through an Insurance Agent
    Independent agents generally represent multiple companies, so they are able to compare more prices and often get you a better quote.

  3. Through an Online Broker
    Purchasing online may seem faster and easier, but keep in mind life insurance policies and costs can be confusing, so it may be more difficult to do it on your own.

Before buying, consider whether you are able to afford the monthly premium payments long term. Factor in what will happen if you lose your job or have to tap into your savings for an emergency.

Read through the terms of the policy carefully BEFORE signing. Take time to understand what is and isn't covered by your policy, if there are contingencies on the payout or barriers to canceling the policy.

Pay special attention to:

  • The type of policy you want.
  • Renewal details.
  • Year-to-year variances.
  • Benefits or fine print for policy dollar allocation.
  • Interest on the policy.

How Does the Application Process Work?

This process can take several weeks because it's quite lengthy - and personal.

First, you'll need to speak with an agent to verify the information you provided during the quoting process, answer additional questions about your needs, and confirm that the quote you selected is best for you. Usually, you'll be sent paperwork that you also have to fill out and sign to verify your intent.

The application process works differently for different companies, but they general all follow the same process.

Non-Medical Exam Policies
The process consists of answering some general questions online about you, your health, and your coverage wants and needs. Based on your answers, the company will decide whether to insure you or not. Underwriting often happens and coverage is obtained within 24-48 hours.

To learn more, check out: No Medical Exam Life Insurance.

Medically Underwritten Policies
You'll have to fill out the application online to answer general questions about you, your health, and your coverage wants and needs. You'll also have to schedule and participate in a medical exam, and the results will be sent to the insurance company.

Once complete, the information will be sent to the insurer, who will analyze the results and decide whether to insure you or not, as well as what to charge as your monthly premium.

When your policy is approved, you'll be notified and receive a full copy. Typically, you'll also be asked to make the first premium payment.

After you make your first payment, you're good to go! Just make sure you continue to make payments on time every month to avoid a lapse in coverage.

Common Life Insurance Mistakes to Avoid

Immediately Opting for a No-Exam Policy
While no-exam policies have faster approval times and are generally easier to get, you could pay a much higher premium. Remember: the insurance company knows less about your health and therefore is taking on a higher risk by insuring you.

It may make sense to get a no-exam policy if you:

  • Are older or are in poorer health and won't qualify for a traditional policy
  • Have been denied coverage in the past
  • Need quick coverage for a divorce or business loan.

Rushing Into a Purchase
There are two parts to this mistake. First, some people who quote online and are contacted by an agent feel pressured to purchase a policy even though it might not be the best option for them. This can especially happen if they don't do their research ahead of time.

Make sure you and the agent you are working with take the time to really understand what your life insurance needs are and what type of policy and coverage amount is best for you.

Part two is only purchasing one policy when multiple may suit your needs better.

For example, perhaps you won't need $1 million in coverage for a full 20 or 30 years. Instead, you can purchase a 10-year policy for $500,000 and a 20-year policy for $500,000.

That way you have $1 million in total coverage, but you won't have that full coverage for all 20 years if you don't need it. This could save you dollars in your monthly premium.

Not Understanding Different Types of Agents
Each type of agent brings different expertise and sales persuasion to the table. Consider which would best serve your needs.

Bottom Line

Thinking about what happens when you die isn't easy. But a life insurance policy is a critical piece of your financial planning. Your life insurance coverage will help your loved ones pay off debts and take care of other obligations after you're gone.

Working with a life insurance agent can help ease the quoting and purchasing process to ensure you get the coverage you need with a policy and coverage amount that works for you.

Once you understand what life insurance is, why you need it, and what your options are, you'll be able to make the most informed decision.

Disclaimer: Opinions expressed here are author's alone. Please support CreditDonkey on our mission to help you make savvy decisions. Our free online service is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content.

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