When thinking about buying life insurance, age is undoubtedly one of the things you must consider. Generally speaking, the younger you are, the healthier you should be. And as a result, life insurance is usually less expensive when you’re young than it will be later in life.
So if you have the money, getting your first life insurance policy in your 20s is a smart decision. But you need to ask yourself why you’re buying life insurance in the first place, and multiple factors come into play, like, your career, home life, and overall health.
Less about age, more about stage
“Instead of age, think about life events,” says Steve Cooney, Head of Individual Life and Annuities at BMO Insurance. “The critical life events people typically consider are marriage, children, and purchasing a home.”
“In each of those situations, the people dependent on you and your financial circumstances are changing. So you need to think about what financial needs those individuals would have if you weren’t in the picture, and how you could provide for that.”
When you’re young and single, starting a career, or beginning a family, your protection and accumulation needs are just emerging. And over time, they’re going to change. You may have a view of what your future family might look like, or what type of home you want to live in, but you may also already have other types of dependents that are less visible. For example, your parents may need assistance depending on their financial situation and overall health.
“More and more there are multiple generations of dependents that people need to think about,” says Cooney.
The “sandwich generation” (those in their 40s to 70s) has been tasked with caring for aging parents and supporting their own children — a phenomenon that’s unlikely to disappear any time soon. That’s because people are living longer and starting families later in life.
Cooney points out that there has generally been a five-year shift for life events like moving out, marriage, and buying a home. There are also some important overarching trends that impact the insurance decision, including the growing popularity of cohabitation versus traditional marriage.
Shared assets, income, and debt
“Regardless of whether you get married or are cohabitating with someone, you’re likely creating a relationship where you are dependent on one another for certain things, so life insurance comes into play,” he says.
Taking on a mortgage is usually the largest liability an individual or couple assumes, and term life insurance solutions (which cover you for a specific period of time) are ideal for this scenario. Not only do they tend to be more affordable, but they can be tailored to provide the right amount of coverage for a big chunk of debt.
Instead of age, think about life events. The critical life events people typically consider are marriage, children, and purchasing a home
Term life insurance is typically best suited for younger individuals, and is the usually most affordable solution because it expires after 10, 15, 20, or sometimes even 30 years. As careers progress, more permanent solutions like whole or universal life insurance can be used, which helps people accumulate wealth and start planning efficient estate transfers.
As the costs associated with college and university rise, and more young people take on bigger student debt loads, they’re beginning to understand the value of life insurance. They want to make sure nobody else gets saddled with that debt at some point in the future.
“We are certainly seeing it with young professionals — lawyers and doctors — starting their careers, and the value they place on life insurance and even critical illness insurance,” says Cooney. “They’ve invested tremendously in their careers, and if something happens where they are not able to realize the value of that investment, or they need to recover from certain things, they want to make sure that they can replace lost income.”
When kids are in the picture
Other considerations to keep in mind are the costs associated with putting children through post-secondary education, the possibility of acquiring a second home for investment purposes or recreational use, like a cottage, or business partners that may be dependent on you.
It’s also important to keep in mind the non-monetary aspects of a relationship.
“In every household, there is a sharing of responsibilities, and if something happens to the primary caregiver at home, that work will still need to be done if that partner isn’t there,” says Cooney. “This tends to be a secondary consideration and it shouldn’t be, because it is incredibly valuable to the overall health and financial wellbeing of the relationship.”
Just because the work doesn’t come with a paycheck, doesn’t mean that person shouldn’t be covered by a life insurance policy.
Conversations about life insurance tend to be awkward because you’re contemplating your mortality, but it’s never too late or too early to think about your needs and the needs of those close to you.
“It’s about your situation, and your age is just one of the factors,” says Cooney. “Your life insurance needs are typically always evolving, because your life is always changing.”