If you are a working professional, the chances are that you have some kind of life insurance provided for you by your workplace. Some life insurance policies paid for or subsidized by your employer are better than others, but some are too expensive or do not provide adequate coverage to be able to cover your debts and support your dependents.
And if your job situation changes, you may no longer have access to employer-provided life insurance.
So when is the right time to buy your own individual policy?
For most people, the answer is as soon as possible. There are some advantages to buying life insurance while you are still young. For one, you lock in a lower premium if you start younger.
Life insurance gets more expensive the older you get. The reason is simple—you are statistically less likely to pass away when you are young, and more likely to pass away when you are old.
Because most people do not like yearly price increases, insurance companies offer level term policies with a locked-in rate. Because the rate does not change, but the risk of passing away increases over time, the rate they charge is essentially averaging out the premiums over the term.
Whole life policies, which are more expensive than term life policies, also tend to keep the same rate throughout your life. With whole life, you also pay less when you are young because it is likely that you will be paying premiums for longer if you buy the policy when you are younger.
The Health Factor
There’s another element that must be considered when you are thinking of buying an individual life insurance policy. For many insurance policies, the insurance companies rely on a thorough medical exam to set your policy premium and assess their risk. While some policies don’t require a medical exam (these policies are called simplified issue), the coverage amounts available tend to be much lower.
Although some folks stay healthy throughout their life, health issues tend to increase as we age. There are some conditions that will increase your life insurance premiums—high blood pressure, high cholesterol, weight problems, asthma, type 2 diabetes, cancer, sleep apnea, heart disease, and depression are a few. Even if you’re healthy, if a sibling or parent has any of these issues it may impact your premium.
The health exam is a one-time thing—it’s only done to decide whether you qualify for life insurance and how much you should pay if you do.
You can avoid paying higher premiums by getting life insurance when you are younger and healthier. Some health problems may start when you start having a family, so it might be worth buying a policy before you have children.
But Do I Need Life Insurance?
Most people would benefit from having life insurance, but whether everyone needs it is an important question. The point of getting life insurance is to be able to provide for your dependents if something happens to you. Your policy should be able to pay off your credit cards, mortgage, and loans. It should also pay for your children’s education, and ensure that your spouse is financially secure going forward.
Having life insurance is wise while you’re working to become financially stable. If you have a high net worth and few if any debts, you may not need life insurance. Or if you have no dependents and do not expect to, life insurance may also be unnecessary.
Life insurance is not an investment, but a way of managing your risk. None of us expect to pass away at a young age. We hope to not need our life insurance, and many of us won’t. But it can help provide financial security for our families in the event of the unexpected.