There’s a lot on Millennials’ minds when it comes to money.
Many are paying off student loans, trying to save for retirement, squirreling cash for a future home, planning a wedding, or thinking about a child’s college expenses. For a lot of us, the thought of another monthly expense simply isn’t realistic.
On the other hand, many of us don’t talk about death because, well, it’s uncomfortable. Who wants to think about their life being unexpectedly cut short?
Regardless of your age, there may be people who depend on you financially. Or you may have family members who would be stuck paying your debts if you suddenly passed away.
If the unthinkable happened, what do you hope the outcome would be? The truth is, you have more control than you might think. That’s why it’s worth considering whether or not life insurance makes sense for you.
This article was sponsored by SelectQuote, but all opinions are 100% my own. If you find it useful, please share it with the hashtag #SQinsurance!
How Many Millennials Actually Have Life Insurance?
Life Happens, a nonprofit consumer group formed by insurance providers, conducts an insurance barometer study every year to determine generational attitudes about life insurance.
Here is what their 2016 study found:
- 51% of millennials currently have a life insurance policy.
- 55% of millennials wish their spouse or domestic partner would purchase coverage.
- 51% of millennials estimate surviving members of a household would immediately struggle to pay for living expenses in their absence.
- Competing financial priorities is the main reason half of millennials haven’t purchased life insurance. These priorities range from general costs of living (62%) to vacations (15%).
What Does Life Insurance Cover?
The purpose of life insurance is to help provide financial security for loved ones if you died.
A life insurance policy’s death benefits can be used to cover:
- Lost income
- Outstanding debts like a mortgage, medical bills, or unpaid taxes
- Cost of childcare for a stay-at-home parent
- Settling your estate
- Final expenses like a funeral, wake, cremation, or burial
- Funding education for your children
- Transferring wealth or leav an inheritance for your family
- Business purposes
Does Life Insurance Make Sense for You?
If you’re young, single, and debt-free life insurance may not make sense. But here are a few common scenarios to think about:
- Do you have children? For many millennials, having a child is the trigger that motivates the purchase of a life insurance policy. Your death could leave a significant financial burden on your family.
- Does your partner rely on you financially? You may both be contributing, but does your partner rely on you to cover a portion of the monthly budget? Are you paying down debt like a mortgage? It’s worth assessing your combined savings and debts.
- Do you have a large amount of co-signed student loans? Many millennials are still paying down a significant amount of student debt. And many of these loans were co-signed by a parent. If you suddenly passed away, your parents may be on the hook for the balance.
What Type of Life Insurance is Right for You?
There are two types of life insurance products available and it can be difficult to determine which is best for you—especially when you’re being hit with an aggressive sales pitch.
Term life insurance is financial coverage that lasts a specific amount of time, usually 10-30 years. Term life insurance is known for having lower monthly premiums and there is a guaranteed death benefit for the policy holder.
The policy stays active as long as premiums are being paid. However, one negative about term life insurance is premiums can become significantly more expensive if you need to extend the term later in life.
Permanent life insurance is financial coverage that lasts a lifetime and it can come in either whole or universal form.
Permanent life insurance is a more complicated product because it has a cash value that can fluctuate over time. Because it covers an entire lifetime, premiums are significantly higher than term life insurance policies.
If you are considering permanent life insurance, it’s worth discussing with a trusted financial planner who isn’t earning commission on the product.
For many millennials, term life insurance is the right choice. It’s much cheaper, simpler, and you won’t be stuck with an expensive policy you don’t need later in life.
How Much Life Insurance Do You Need?
Once you have determined you need life insurance, the next step is figuring out the amount you need. That part can be tricky.
Fortunately, Matt Becker from Mom and Dad Money created a handy spreadsheet to help you figure this out.
His process includes outlining the following:
- Your current budget
- Projecting income and spending changes if a partner dies
- Calculating your total debt
- Determining lump sum wants and needs
- Figuring out what Social Security will cover
- Adding in current savings
His post is super in-depth, and I highly recommend reading it once you have reached this step, especially if you have a family.
Your employer may offer a group life insurance plan, but it’s worth reviewing the policy to make sure their coverage meets your needs. It’s also worth considering what happens when you eventually leave your job. Does the coverage end? If not, what’s the cost to stay insured.
In many cases it may be smarter to opt for an individual policy.
Where To Find a Term Life Insurance Policy
If you’re the type of person who prefers doing your own research, you may want to check out SelectQuote. They have been in business for over 30 years and can help you find the lowest cost option.
SelectQuote offers unbiased price comparisons of your best rates from highly-rated life insurance companies. Their agents are committed to answering your questions, keeping the application process simple, and helping you make informed decisions.
The Bottom Line with Life Insurance
Making a decision about life insurance isn’t easy. Regardless of what you decide, it’s important to do your own research and try to avoid being pressured into buying a costly policy from sales people who don’t have your best interest in mind.
Remember, a life insurance policy shouldn’t be part of an investment strategy—it’s a financial protection plan meant to cover your loved ones if you were no longer here.
Readers: Do you have a life insurance policy? What motivated your purchase?