Do you need life insurance in your 20s?

Your twenties are usually a time when you’re building a financial foundation: you’re paying off student loans, finding the right career (or a job) and trying to pull together an emergency fund. The last thing you’re probably thinking of is life insurance. But your twenties might be the right time to buy some, according to financial experts Ashley Xu and Jeff Simmons.

“People aren't even aware of life insurance in their early twenties unless their parents or a friend tells them to get it,” says Simmons, an independent senior insurance broker.

Still, it’s a good time to at least consider whether getting a policy is right for you.

“Is life insurance ever worth it for people in their twenties or students? Yes and no,” says Xu, a certified financial planner and registered retirement consultant with Investor’s Group. Most twenty-somethings don’t have children or other dependants and may still be on their parents’ insurance, so there’s often no need to get their own policies. Nonetheless, there are three reasons why it may make sense to get a policy.

“The first reason is to protect your insurability because when you’re young, it’s most likely you're going to be healthy,” Xu says. “The second one is that you can lock in really cheap rates now for future needs. And the last thing is if they have actual needs — if you have a family, then you can replace that income.”

Protecting your insurability

Most of us don’t think about life insurance until we’re in our late twenties, says Simmons. “Getting started early is really advantageous for two reasons because of number one, the price.”

He explains that you can lock in a good, low rate when you’re young so that by the time you actually do need the insurance, you have it. That’s because most people are generally their healthiest in their early 20s and the rate is often the lowest between ages 22 to 32 years.

Decent rates

The sad fact is, the older you get, the sooner you’ll need life insurance — and that’s when it can get expensive. One of the biggest factors that insurers take into account when calculating rates is your age, says Xu. “The assumption is 20-year-olds versus, let's say, 50-year-olds,” she explains. “50-year-olds, unfortunately, are closer to their passing in terms of probability than the 20-year-olds, and therefore it's cheaper for 20-year-olds [to get a new policy] because [insurance companies] expect them to pay into it for many years and for them not to use it." 

“This is all assuming someone is healthy, then it's going to be much more affordable in their twenties.”

The savings can be significant, says Simmons. All things being equal, the difference between what a 20-year-old and a 40-year-old pays could be close to $30 per month.

Growing cash value

There are two types of life insurance, term life insurance and permanent life insurance.

Simmons says that with permanent life insurance, you can build up cash value that you can use for retirement. By starting early, you’re covered at a low rate and your plan has built up money that you can pull out. You also have a tax asset. A life insurance policy is considered exempt from taxation if the investment earnings associated with the cash value accumulation in the policy are not subject to annual taxation.

Term insurance can be significantly cheaper because it doesn’t build cash value and it can be even cheaper depending on your age. That can make it more affordable to purchase, especially if you have a young family.

While getting life insurance is a personal choice, both Xu and Simmons think there is a right time to get insurance. “It's just people think they only need life insurance when they need it,” says Simmons. “I think the best time to get life insurance is when you don't need it.”