The steps are predictable: Graduate from college, start your first job and then, with a few paychecks in the bank, start saving for retirement and make sure you have the necessary insurance to cover your other stages of life. But for millennials, the current generation of young adults and the largest generation in the U.S., the process doesn’t necessarily include life insurance coverage. A Gallup poll indicates that millennials are the least likely to be engaged with their primary insurer and are more likely to purchase policies online. With the cost of living on the rise, the insurance gap is further compounded by millennials’ concerns about keeping up with competing financial priorities, such as general living costs and vacations.1
Yet, just as we all need vacations, we all can benefit from insurance, especially when married or with dependents. A policy can provide invaluable income replacement. For a couple that has purchased a home, life insurance can spare a survivor from a major financial burden if something happens to the other spouse. And although millennials cite existing financial priorities as a reason to avoid insurance purchases, life insurance is in itself designed to cover the debts you leave behind, including some student loans.
Some young professionals enjoy group insurance as a workplace benefit. The U.S. Bureau of Labor Statistics reports that 54 percent of full-time private industry workers participate in life insurance through their employers. While such coverage can be useful, most experts agree that the payouts from work-provided policies aren’t adequate for covering the day-to-day bills that a beneficiary faces beyond funeral costs and related expenses.
As millennials consider insurance, a shift in perspective may be important. Most of us think of insurance as an expense, but once you have it, life insurance is an asset like any other investment. One type of life insurance — permanent life insurance — is sometimes known as cash value insurance. Permanent life insurance pays out a death benefit, and the policy is in effect as long you keep paying premiums. But unlike some kinds of insurance, permanent life insurance also has a cash value component that builds over time, allowing you to potentially borrow against it. Eventually, the policy can be “paid up,” meaning the insurance company will use the cash value to cover the premiums until you die.
This cash value can be an attractive option because it essentially meets both investment and insurance goals. Some of the value of permanent life insurance lies in the fact that it grows tax-deferred and is easily accessible by withdrawal or loan. Loan repayment terms are flexible and are usually up to the policy owner. It’s a good idea to speak with your financial advisor before taking a policy loan to make sure you fully understand your options.
Think you’re too young for life insurance? An important consideration may be that the younger you are when you buy a life insurance policy, typically the less you pay. While in your 20s, you probably are at the peak of your health and less risk for the insurance company, so an insurer can offer lower premiums.
Purchasing life insurance while young and healthy not only allows you to capture lower premiums, but also helps you buy more coverage over your life span.
As the favorite target of marketers today, millennials have plenty of demands for their hard-earned dollars. A logical step toward “adulting” is putting income toward preparing for the future, and life insurance can play a role in doing just that.
1 http://www.lifehappens.org/industry-resources/agent/barometer2016/
Information contained herein has been obtained by sources we consider reliable, but is not guaranteed, and we are not soliciting any action based upon it. Any opinions expressed are those of the author and based on interpretation of data available at the time of original publication of this article. These opinions are subject to change at any time without notice. Investors should consult their financial and/or tax advisor before implementing any investment plan.