Many young adults don't give a lot of thought to life insurance. But it's important not to wait too long before purchasing a policy and prevent any major financial burdens to your family should the worst happen.
It's also sound personal financial planning, since purchasing at the right time allows you to take advantage of lower insurance rates (see What Influences Life Insurance Premiums? to find out what else might come into play).
But before we discuss the right time to buy, we have to sort out the different types of policies that are available to you.
Types of Life Insurance
First we have term life policies. These only offer coverage for a set period, such as 10 or 15 years, and they may be suitable for older individuals. For one thing, the younger you are, the more likely you are to outlive a short-term policy.
At the same time, term life policies may feature a convertible provision so that you can convert it into a permanent policy to benefit from coverage for your whole life (find out more in Insurance as an Investment? It's Called Permanent Insurance).
Next, whole life insurance. This is a type of permanent policy that features an investment component. That means you can build up the cash value of your policy without paying any taxes whatsoever. However, there are commissions, surrender charges, and built-in fees that may take away from a portion of your investment. Moreover, premiums are typically up to 10 times higher than those of term insurance, so it's best to be cautious.
Whether you choose term or permanent depends on your specific financial and family situation. For example, if your child has a disability that will likely make them financially dependent on you for their entire life, purchasing a permanent policy in the first place may be a better option.
Waiting Too Long
Even if you're extremely healthy and have been your entire life, there is no way to know what could happen. We're good at telling ourselves that we live relatively safe and healthy lives so we'll reach a comfortable old age. But even if your family medical history suggests that you are, say, not at a high risk of cancer, you are not immune to it. And even if you were, that would be no protection from a car crash or other fatal accident.
The point of life insurance isn't to purchase it knowing that our loved ones will get to cash them in soon. They are a method of financial planning and ensuring that your family's financial future remains secure. So, don't wait until you believe you're at a high risk of dying soon before purchasing a policy.
The Best Age to Take Out a Life Insurance Policy
In general, you should purchase life insurance at the age of 30. At that age, your premiums will still be relatively low (so long as you are in decent health). You'll have the option to purchase a 30-year policy, which will come at a good price compared to shorter-term policies.
Keep in mind that the 30-year policy won't stay on the table forever. Once you reach 59 years of age, you will no longer be able to purchase it and will have to take out a policy for 10, 15, 20, or 25 years. And your coverage options just grow slimmer after that: 20-year policies will no longer be available to you once you reach age 75.
So, don't wait until later in life to purchase a policy. The added premiums aren't worth the wait. Once you reach 30, start shopping for life insurance options and purchase the right one, if you haven't already.