Young, Single and Insurance Free…It’s all Good, Right?
So, you’re a young man or woman in your 20s. You’re in college, which is a fancy way of saying you’re broke, as you work towards a better financial future.
Between groceries, rent, tuition, bus passes and trying against all odds to sock a little bit of money into a TFSA, (goodbye fancy latte once a week!) the last thing on your mind is life insurance.
But it’s okay because you aren’t drawing a significant income, you don’t have dependents, so you don’t need it, right?
Actually, now is the perfect time to buy a life policy.
Wait! Come Back!
This is the point where your wallet says, ‘stop reading this blog right now,’ but hang in there, okay? What if I told you that buying a policy today will save you thousands of dollars over your lifetime?
The major drivers of life insurance are age and health, and as you probably guessed, life insurance is more expensive as you age. Aging is also a significant contributor to declining health, especially if your focus right now is more on pub crawls and pizza than hitting the gym and making kale smoothies. Hey, we’ve all been there!
The thing is, your young body can take a lot more sleepless nights and party weekends right now than it will 10 years from now, and even though you may be living on a budget as you work towards a full time career, if you take advantage of your youth and health now to get a low policy rate, you can lock that in for decades.
I’m Listening…What Kind of Rates are we Talking About Here?
I’m going to assume you are a 20 year old Canadian male with no history of heart attacks, diabetes, stroke, etc. Your weight is appropriate for your height and you are a non-smoker. A $1 million term policy for 50 years will run you roughly $95 per month; so, around $57,000 over the lifetime of the policy.
Too much? Let’s dial it back a bit. Let’s cover you for 20 years at 1M. Now you are down to $60 per month.
We can still play with the numbers, however. Let’s drop the policy value to half that amount. Now you are looking at just $33 per month for a 50 year term on a $500,000 life policy.
Sure, you could drink away $40 a month easily… certainly more fun than life insurance. But I bet you are going to meet a nice partner, settle down, buy a house and have a child or two within the next 20 years.
That is also known as the “most expensive time of your life,” in which your bank will need you to have life insurance for your mortgage, your spouse will want you to have life insurance in case anything happens to you, and your kids will certainly need you to be insured so they can go on to have the opportunities you want for them.
If you take advantage of your youth and health now, when those “most expensive time of your life” years show up, also known as “paying back my student loan years,” you will be ahead of the game. You can say “nope” to the banks’ offers of non-portable, restrictive mortgage insurance because you already have life insurance.
You can propose to your significant other and promise to protect him or her financially for life. You can rest assured that your kids can play sports and go on school field trips and stay in their current neighbourhood, even if you are not there to deposit a bi-weekly paycheck.
That’s a good feeling!
So, What Happens 50 Years from Now?
You’re coasting along, paying a paltry $33 per month for half a million dollars in coverage, happy with all the money you are saving on life insurance. Suddenly you turn 70. Boom – you can hear your policy end with a sudden stop. Now what?
Most people who choose term life insurance do so with the intent to either convert to permanent or, as they become more financially flush, to invest the savings between term and permanent into other assets. As long as you do one or the other (or both if you are so inclined), and keep an eye on your retirement goals and budget, the ending of your life insurance policy at age 70 is not a big deal.
Just make sure you work with your broker and respond to his or her annual check-ins to make sure you are on track for your financial goals. Your broker can even set you up with segregated funds and other savings plans when you are ready.
The Numbers do Add up…
You bet they do! The numbers make good cents…er…sense. While you may find your 20s to be lean years financially, it is the perfect time to play the long game with life insurance and save thousands of dollars.
Your 20s are the perfect time to buy your first policy and to build a lifelong relationship with a life insurance broker that will guide you through all of life’s financial changes and challenges as you age.