Generally, you need life insurance if other people depend on your income or if you have debt that will carry on after your death. However, the older you get, the more expensive life insurance becomes. That's why the younger you are when you buy life insurance the better usually, especially if you can lock in a low rate. If you wait too long to purchase life insurance, not only is it more expensive, it can be harder to get the policy approved by an insurance underwriter.
The right time to buy life insurance varies from person to person, depending on family and financial circ*mstances. If you want to purchase a permanent insurance policy with a cash value, you need to own it long enough for the cash value account to grow. If you get a term life policy, it's only in place for a certain number of years and doesn't include a cash value component, so the optimal time to purchase a policy may be different.
Key Takeaways
- When others depend on you financially—or you have significant debt—it's crucial to have life insurance.
- The sooner you purchase life insurance, the lower your rate will be, as it becomes more expensive with each passing year.
- A term life policy is cheaper but only lasts for the length of the policy term (for example, 20 years) and doesn't feature a cash value component.
- Permanent life insurance has a cash value aspect. Holding the policy for longer lets that cash value grow over time.
Why Younger Is Usually Better
When it comes to timing, the younger you are when you buy life insurance, the less expensive it will be. This is because at a younger age you'll qualify for lower premiums. And as you get older, you could develop health problems that make insurance more expensive or even disqualify you from purchasing a plan.
However, younger people faced with mortgages, car payments, and student loan debt tend to put off buying life insurance. While paying off current debt is critical, missing out on buying life insurance at a young age has a significant economic impact, much like delaying saving for retirement. The sooner it is purchased, the better.
In some cases, you may not need life insurance, such as if you're not planning to have dependents like children or a life partner, or to get a mortgage, and your estate can be settled with the assets you have at the time of your death. But if you think any of these things might be in your future, it still can pay to get life insurance even before you've got an apparent need for it.
When considering your need for life insurance, remember that your timing will dictate the balance between paying lower premiums for more years as a younger policyholder or owing higher premiums if you start a policy later in life.
When to Purchase Term Insurance
Term life insurance covers you for the term of the policy. While a younger age is generally better, when that term should start also may be based on when you anticipate other people depending on your income. You'll want the term of the policy to last as long as your dependents will need your income. For parents, this is often until their children are grown.
People in couples who own property together may want to be covered until their mortgage is paid off. If both people in a couple are earning income that is crucial to the family, then each should be covered. Parents who don't earn income may also want to consider coverage, as their unpaid labor (childcare, etc.) might need to be replaced by paid services (such as daycare) in the event of their death.
Life insurance may be prudent even before you have dependents if you have unsecured debt, such as credit card balances or some private student loans. For instance, credit card companies require that all outstanding balances be paid upon the death of the holder.
The table below shows sample monthly and total premium costs for a 20-year term life policy taken out by a healthy, non-smoking male at rising ages. In addition to age, life insurance rates vary by where you live, gender, existing health conditions, and possibly other demographic factors.
| 20-Year Term Premiums for $500,000 Policy for a Healthy Male Non-Smoker | ||
|---|---|---|
| Age | Monthly Premium | Total Cost |
| 25 | $27 | $6,480 |
| 35 | $30 | $7,200 |
| 45 | $61 | $14,640 |
| 55 | $150 | $36,000 |
When to Buy Permanent Life Insurance
With a permanent life insurance plan, the cash value grows tax-deferred. Premium contributions to whole life policies purchased at an early age can accumulate considerable value over the long term, as premiums are typically fixed for the entire life of the policy.
Cash value can even be used as a down payment for a first home purchase. If held long enough, what you accumulate may be able to supplement retirement income. However, the money needs time to grow, which is why an early start is best.
A whole life insurance policy can be prepaid via a lump sum for a minor (even an infant). When the minor turns 18, the policy can be transferred to the insured, at which point the policy can be funded further, or cashed in if it holds any equity.
Cost of Waiting
Forgoing life insurance purchases at a young age can be costly. Because permanent life insurance policies grow in value over time, the sooner you buy in, the better off you will be down the road.
Term policies are different because each individual is different when it comes to deciding when that term of coverage is most beneficial. Still, buying at a younger age helps keep the cost lower. For example, the average cost of a 20-year level term policy with a $250,000 face amount is about $205 per year for a healthy 25-year-old male. In contrast, the annual premium for a 45-year-old male is about $421.
Additionally, waiting to purchase life insurance can have a greater impact on an attempt to purchase a policy. Medical conditions are more likely to develop as an individual grows older. If a serious medical condition arises, a policy can be "rated" by the life underwriter, which could lead to higher premium payments or the possibility that the application for coverage can be declined outright.
When Is the Best Time to Get Life Insurance?
The younger and healthier you are, the lower the cost of a life insurance policy will be. If you are thinking about starting a family, it is often smart to buy life insurance at that time or even a few years before then to make it more affordable in the long run. When you're ready to buy, our list of the best life insurance companies can help you make the right choice for you.
What Life Insurance Should I Get When I Have a Baby?
If you have children, life insurance can provide needed financial support in the event of an untimely death. In terms of amount, the death benefit should be enough to cover all your existing debts and obligations, replace your income for the years that your children would still rely on you, and be able to also pay for things like a college education.
When Should I Buy Term Life Insurance?
Term life insurance can be the more cost-effective option when you only need the death benefit for a limited number of years, and not for your entire life into old age. If you have debts or dependents, or are even just thinking about them, it may be a good time to get term life insurance. Talk with an insurance agent or broker to help you decide what is best.
When Should I Buy Life Insurance for My Child?
Life insurance policies can be taken out on children soon after they are born. A permanent life insurance policy for a young child will come with a far lower premium than for when that person is an adult. At age 18, you can then transfer the insurance policy over to the child so they will have coverage going forward.
Should I Buy Life Insurance When I Am Young and Single?
It depends on whether you think you will start a family in the future. If so, it's good to buy insurance when you are younger, when it is more affordable. You may also want life insurance to establish an estate, give to charity, or repay debts and obligations upon your death, whether you're single or not.
The Bottom Line
The longer you wait to buy life insurance, the more expensive it will get. Also keep in mind that if you wait, you run the risk of deteriorating health, which may raise your rates even further or make you ineligible for some life insurance at that point. When you should get life insurance will depend on your personal and family situation, along with your finances and obligations. But in general, life insurance is less expensive when you are young.
If money is tight, a term life insurance policy can offer a financial safety net for your family. If you purchase permanent life insurance, owning it over many years will give the cash value component of the policy time to grow.
