When is the Best Time to Buy a Life Insurance Policy?
How old should you be when you buy life insurance? Ideally, you should buy a policy as a newborn. Because people associate life insurance with death, they think of it as something they need later on in life, and only if they have others who depend on them. Those are certainly not the only circumstances under which someone should buy life insurance. To suggest that there is a “best time” is to buy life insurance is limiting. It really depends on the person, so we’re sharing the important details about what a policy can offer.
When it comes time to start a new job, most employees worry about health insurance and dental insurance while barely paying attention to the life insurance portion of their benefits. Unless they have children, younger people figure, “What’s there to worry about? I’m not going to die any time soon. And if I do -- I’ll be dead, anyway!”
Life is not that clear cut so it’s important to look at life insurance as having more to do with life than death. In fact, a life insurance policy can pay for college, a first home or cover any emergency situations that may arise. Keep in mind, however, that not all life insurance policies have the aforementioned savings component, so it’s important to know what each kind of life insurance offers.
Here are some quick facts about buying life insurance, which may help you decide if you need to buy life insurance for yourself or a loved one today or if you can stand to wait a few years. Life insurance coverage must complement your lifestyle and needs. Your agent may make a suggestion based on their own lifestyles, health and similar factors. But only you know what works best for your life, so take some time to understand types of coverage available before you buy.
Golden Truths About Life Insurance
- It only gets more expensive to buy a policy the older you get.
- A life insurance policy is tax deferred so a life insurance policy with a savings plan may act as a smart savings account too.
- Young people in their early 20s acquire credit cards and debt, which they should be balancing -- and more importantly, covering -- with a savings, preferably in a tax deferred system like a life insurance plan.
- For the average American, buying life insurance before the age of 35 is most cost effective.
- People are buying life insurance later in life despite the clear advantages of buying it as young as possible. Mainly, they don’t understand how it can be an interest-earning and tax-deferred savings account.
- Only 40% of Americans have life insurance, even though it’s beneficial and often necessary to those left behind.
- The older you are, the more complicated it becomes to buy life insurance. If you have any existing medical conditions, your rate will most likely increase significantly.
The Different Kinds of Life Insurance and What Sets Them Apart
There are three main types of life insurance. Each has its advantages. We’ll try to give you a clear picture of how facts and figures relevant to each change as you grow older.
Term Life Insurance
- Term life insurance, as the name suggests, is set for a specified period of time. If the insured passes away within the coverage duration, the benefit is paid out.
- If the insured lives beyond the specified period, there is no payout but there is an option to renew at a higher rate that reflects one’s age and likelihood that they will die within the coverage period.
- The older an insured gets, the more expensive term life insurance rates becomes. The main three factors determining life insurance rates are: age, health and sex.
- There is no savings benefit to this type of life insurance. The only benefit is the death benefit.
- Because there’s no savings element to term life insurance, it’s the most affordable type of life coverage.
The Three Types of Term Life Insurance
There are three types of term life insurance: Level Term Life Insurance (or Level Premium Life Insurance), Yearly Renewable Term (YRT) and Decreasing Term Policies
- Level Term Life Insurance. This type of coverage typically covers 10 to 30 years. It is paid out only if the death of the insured occurs within the specified coverage dates.
- Yearly Renewable Term Life Insurance (YRT). This type of life insurance coverage doesn’t have a specified term and is renewable each year without having to provide proof of insurability each year. With age, premiums become more expensive as time passes.
- Decreasing Term Life Insurance. This type of coverage covers anywhere between 1 and 30 years.
The death benefit amount and premium amount are fixed. The premium on a level term life policy is higher than a YRT policy.
There are options to affix this kind of life insurance to a mortgage loan to pay off the remaining balance after the insured’s death. This type of mortgage loan is advised to people with an interest-only mortgage.
Young couples often buy this type of coverage, which is affordable and will ensure the coverage of young children in the event of an untimely death.
This type of coverage offers level (or fixed) payments so there is no increase or decrease in policy price but the payment benefit amount decreases over time.
Many of these types of policies become mortgage life insurance, which affixes itself to the insured’s remaining mortgage on a home. A mortgage life insurance policy is designed to pay off one’s mortgage after the insured has passed.
How Whole Life Insurance Differs from Term Life Insurance
Whole life insurance is a permanent form of insurance, meaning that unlike Term Life, the coverage period does not end. It’s a lifelong coverage with no need to renew.
This type of coverage also has an investment component to it: the policy’s cash value. The cash value of your policy grows tax deferred and at a guaranteed rate, which is one desirable element of whole life insurance versus term life insurance.
You can always borrow money against the account. You can also cash out the policy, even though you’ll be left with no death benefit.
Whole life insurance is the simplest form of permanent life insurance because the premium remains the same on your policy for as long as you live and you’re guaranteed a death benefit.
Some but not all whole life insurance policies earn dividends which are paid out regularly.
How Universal Life Insurance Compares with Whole Life Insurance
Universal life insurance is a permanent form of life insurance, meaning that there is no end coverage date and no need to renew.
Universal life insurance is more affordable than whole life insurance but it is also has savings and a cash value with interest-earning growth.
The cash value of a universal life insurance policy can grow on a tax deferred basis.
You have the flexibility of moving money from the cash value to the insurance part of the policy at any time.
There is a guaranteed interest rate for the cash portion of the policy, so you never have to worry about dropping interest rates that can affect the amount of cash on hand.
Coverage needs can be altered at any given time with universal life insurance, which is why it’s considered the more flexible of the permanent forms of life insurance.
Where to Buy Life Insurance
SmartFinancial only works with reputable life insurance agents. Contact us to be set up with an agent today to learn about all the benefits offered with various life insurance plans: (855) 214-2291. You can also buy life insurance online.
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