March 6, 2021

Do I Need Life Insurance at 25

Read more about Life Insurance

Life insurance is hardly just for older adults. Find out why 25 is the prime age to lock in an affordable life insurance policy.

At 25, you might not have it all figured out (I definitely didn't).

But that shouldn't keep you from making important financial moves.

The truth is, not every 25-year-old will need life insurance. But if someone relies on you financially or you have co-signed debts, a policy could be a smart idea.

Find out how a policy can protect your loved ones (even if you're single) and why it will never cost less than it does right now.

Top 4 Reasons to Get Life Insurance at 25

It's a common mistake that life insurance is only for married folks or high-rollers sitting on a fortune.

In fact, almost every U.S. adult can benefit from a life insurance policy. Here's how it can work in your life and offer protection at 25.

  1. It can take care of your debts.
    The average 25-year-old has nearly $23,000 in student debt and just over $2,500 in credit card debt[1] [2].

    At 25, there's also a good chance you secured those loans with a co-signer or joint account holder. Maybe it's a parent or older sibling.

    If so, the co-signer would be responsible for paying off the debts if you died.

    Instead of leaving them to pick up the bill, consider getting a life insurance policy. The payout could cover leftover debts and give your loved ones some breathing room.

  2. It can cover your end-of-life expenses.
    Okay, it's a little dark. But get this: Depending on where you live, the total out-of-pocket cost of dying could be as much as $40,000.[3].

    Burials, cremations, urns, funerals - it adds up fast. And it's a big chunk of change for your family to dish out at an already inconvenient time. With a life insurance policy, all that can be paid for.

    Basically, you never know what's going to happen. Instead of only hoping for the best, take a little time and spare change to prepare for the worst. You'll be glad you did.

  3. It can help take care of any dependents, not just children.
    Despite having their own money struggles, nearly 20% of young adults help their parents out with money.[4]

    As Boomers postpone retirement and more family members live at home, there's a lot riding on the money that young adults bring in.

    Even if you're not the main breadwinner at home, your absence would be felt deeply by the family you leave behind.

    A life insurance benefit could help support your family for a few years if the worst were to happen.

  4. It is way more affordable to buy at 25.
    If you think there's even a chance you'll want a policy later, the smartest thing you can do is to get one now.

    Your age and your health are two huge factors that determine how much you pay for life insurance. As a healthy 25-year-old, you've basically hit the jackpot. We're talking as little as $7 or $8 per month.

    Plus, there's a good chance you won't need to take a medical exam to get approved. No blood tests, no physicals, no urine samples.

Fun Fact: 25 is the age at which you've become your most logical, responsible self.

Your brain's prefrontal cortex kicks in and your abilities for long-term planning and risk management are dialed way up.

To that end, securing a life insurance policy at 25 is one of the smartest things you can do for your future self.

How Much Life Insurance Do I Need at 25?

Everyone's coverage needs are different, so there's no single number that would work for every 25-year-old. However, you'll probably need less coverage than someone 20 years your senior.

Most life insurance companies offer handy online calculators to figure out your coverage.They usually ask about your current debts, income, and specific needs.

If you'd rather figure it out yourself, you can start with this handy rule of thumb:

Rule of Thumb for Life Insurance Coverage
Coverage Amount = (Coverage Years × Annual Income) + (Debt + Expenses) - (Liquid Assets + Savings)

What Kind of Life Insurance Is Best?

In general, a term life policy is your best bet because it's most affordable and less complicated than other types. For the full picture, here are the main types to consider:

Term Life
Term life lasts only for a limited amount of time, usually 5 - 30 years. Because it's the most affordable type of policy, it's also the most popular.

The policy is designed to protect your loved ones should you die prematurely. If you do, your your loved ones receive the intended payout. If you don't die within the term, the policy expires.

Whole Life
This insurance covers you for the rest of your life - as long as you keep paying premiums. It also comes with an investment account that grows slowly but steadily (this is sometimes called "cash value").

In most cases, you can access the cash value any time for retirement, emergency funds, or other bills.

Whole life insurance is much more expensive than term life - by up to 15x as much.

Although whole life comes with an investment account attached, you'll likely have better returns investing outside of the insurance policy. Consider investing in mutual funds or ETFs through a brokerage firm or robo-advisor.

Universal Life
Universal life is very similar to whole life insurance. It lasts for the rest of your life and comes with the added account. Part of your monthly premiums go into that cash account.

It's different from whole life because it allows you to increase or decrease your payout amount. You also have more flexibility in how and when you pay your premiums.

Variable Life
Similar to Universal Life, part of your Variable Life premium is contributed to a cash account.

However, the cash value can be invested in a variety of different accounts, including stocks, bonds, equity funds, money market funds, and more.

Bottom Line

As you get older, a life insurance policy is a critical piece of your financial planning. But you'll get the most affordable rates if you buy a policy in your 20s.

Even if you get just a modest policy to cover end-of-life expenses, the support would make a world of difference to your loved ones.

References

Holly Zorbas is a assistant editor at CreditDonkey, a life insurance comparison and reviews website. Write to Holly Zorbas at holly.zorbas@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

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