Tuesday, July 18, 2017
When should you get Life Insurance?
Hello friends, welcome back to my Tip of the Week. This week is all about Life Insurance here at Budget Boss and today I am going to be going over when you should obtain coverage. In order to truly understand Life Insurance, it is important for you to understand the Life Insurance Company itself. It is a fairly simple concept yet it escapes many of us when thinking about Life Insurance. The company that provides you with coverage thinks of everyone it insures in terms of “risk.” What this means is that the value you choose in coverage is the “risk” to the company. The risk of them having to pay out that value is how they determine what your insurance will cost and if they cover you at all. It is a fairly simple concept to understand that the company does not want to pay you out. The way they determine the cost of premiums is to factor in how many people die in any age bracket and then apply that to your life as well as health factors. This makes age the number one factor determining Life Insurance premiums. Statistically speaking younger people are healthier than older people. Logically speaking, it is then more prudent to obtain coverage when you are younger right? Ask most young people and they will say, “Why would I need life insurance?” In this post, I am going to go over why young people should get Life Insurance when they are young and healthy.
1) Your Future self will thank you
Most people think “in the now.” What do I need now? What do I want now? When it comes to insurance the number one factor deterring people from buying it is the fact it costs money. What you should shift your thinking to is, “What do I want my life to look like in the future.” Most people have an idea of want they want life to be 5, 10, 25 years down the road. Many of those dreams include a getting married, owning a home, starting a family. All of those goals require Life Insurance. The problem with Life Insurance is that is not the same as Car Insurance or Home Insurance. Home and Auto insurance often go down in price as you get older as the risk generally goes down. Not Life Insurance. Every year that passes Life Insurance becomes more expensive and sometimes tougher to get. The problem is that the need for it often goes up in time as well. If your goals include advancing in your career, having a family, buying a home or advancing in any way, then the time to get Life Insurance coverage is now. Waiting only makes it tougher and more expensive. This leads me to my next point.
A Blueprint to Financial Success – Budget Boss
2) It is dirt cheap when you are young
As mentioned earlier the risk to the Life Insurance Company goes up as you age. What that means to you is that the price also goes up. Allow me to illustrate my point:
Standard Male Non-Smoking, 20-year Term, $300K Coverage,
Monthly Premium
25 years old: $24.57
35 years old: $28.89
45 years old: $61.02
55 years old: $169.02
65 years old: $567.00
See the jump from age 35 to age 45. It more than doubles in price! Why is that? The reason it skyrockets in price is that after the age of 30 is when most chronic conditions begin. These chronic conditions often develop serious complications later in life. This begets the simple point that younger people are less of a risk than older people to the Insurance Company. You then pay lower prices when younger for the same coverage. So when is the best time to get Life Insurance? Ideally, everyone would have Life Insurance as a baby so as to guarantee their insurability for Life. That leads me to my next point.
3) Health is a factor
Health is the second factor in determining Life Insurance eligibility and premiums. It is logical to conclude that the healthier you are the cheaper your life insurance should be. You are obviously your healthiest when you are younger. Changes in your health can make insurance difficult to obtain or more expensive as mentioned earlier. What many people don’t understand is the implications of this. There are options for those who have insurability issues, they are just more expensive. We mentioned earlier that a 35-year-old male could obtain 300K of coverage for 20 years at a price of $28.89. That same person would have to pay $58.73 for the same coverage with a company that insures higher risk individuals. This shows the importance of obtaining coverage through traditional carriers. You may also be declined for coverage altogether through a traditional carrier if you have health issues. These health issues don’t even have to be life-threatening. High-Risk Insurance Companies can offer you coverage but they will limit the coverage and often have a 2-year exclusion that won’t pay you out if you die within the first 2 years. That is even more of a reason to get covered when you are young.
Getting Life Insurance in Your 20s Pays Off – Investopedia
I have mentioned in many of my other posts that having Life Insurance is part of any stable financial plan. Also part of any financial plan is finding the lowest cost and highest efficient ways to secure coverage. Finding lower cost options allow you to direct that excess money elsewhere including savings. Not securing cheaper coverage creates a situation where you must spend more or leave yourself exposed to disaster should the worst happen. It is my job as a financial advisor to direct you to the best possible product to cover your needs. The good thing about being young and healthier as that there are many options as opposed to being left with only a few. In my opinion, the best time to buy Life Insurance is yesterday. The second best time is right now.
“Fun is like life insurance; the older you get, the more it costs.” – Kin Hubbard
Email – joe@budgetboss.ca
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