What is The Best Life Insurance for Young Adults?

Life insurance policies for young adults is the same type of coverage available to other buyers. However, as a young adult your financial goals are likely to be different from someone in their 40’s or 50’s.

An older adult may want to leave an inheritance or fund their spouse’s retirement. Younger adults, on the other hand, may need life insurance policies to cover their debts (like a mortgage or credit card loan), or want to start saving for retirement, or to have a life insurance plan in place before they develop any hard-to-insure health conditions.

Just like others, young adults can buy either a term life or a permanent life policy. Term life insurance policies come with an expiry date and have only purpose — to pay out the death benefit if you die within the policy term.

Permanent life insurance policies, by contrast, last for your whole life (provided you pay the premiums). Many of them also include a savings component, called cash value, which grows over time. Both whole life and universal life insurance include permanent coverage and cash value. Between the two, whole life insurance is less complicated and offers guaranteed cash value growth.

If you want to start building toward retirement, a whole life plan might be ideal for you. If you do not want a built-in savings component but would like to leave an inheritance or cover end-of-life expenses, consider a simple permanent life plan. That is, one that offers lifelong coverage without the cash value.

Term life insurance, on the other hand, is a great option for all those who are looking for affordable coverage. It can be six to 10 times cheaper than whole life insurance. For young and healthy people, the rates for a term plan can be as low as the cost of an extra-large pizza. Securing a policy at a younger age will drastically improve your cost of life insurance.

Find the best rates

Compare quotes from Canada's top life insurance companies for young adults.

Compare Rates

What Does Life Insurance Cover?

The proceeds from your life insurance policies can help your family avoid financial hardship after you are gone. They can use the payout however they like. In the short term, the death benefit can help them cover end-of-life expenses, monthly bills, and debts. In the long run, it can help pay for your child’s college tuition fees.

Everyday expenses

Your family may use the payout to take care of monthly bills, groceries, and other household essentials.

A co-signed student loan

If a loved one has co-signed a student loan with you, they will become legally responsible for it if you die. Purchasing a life insurance policy with the co-signer of your student loan as a beneficiary can help them pay off the balance in the event of your death.

Mortgage and other debts

For most people, their home is their biggest asset. If you have bought a house with a mortgage, it makes sense to protect it. The last thing you would want is for the people you love to lose their home or exhaust their savings to pay off the mortgage balance should you pass away unexpectedly.  

A life insurance policy, besides being a sound income replacement tool, can help cover large debts, like a mortgage or a credit card loan. Since all debts come with an end date, a term life insurance may work out better if you want to use it primarily to cover debts.

A couple of things to keep in mind are:

• The death benefit should at least be equal to the sum total of all your debts. If you plan to take a debt in the future, factor it in too.
• The policy term should at least be as long as the length of your biggest debt. For example, if the mortgage is your largest debt and the amortization period is 30 years, buy a 30-year term life insurance.

Childcare

There is no denying that children are expensive. On average, raising a child in Canada costs anywhere between $10,000 - $15,000 per year until the age of 18. Depending on your lifestyle, this figure could be even higher.

If something were to happen to you tomorrow, your spouse can use the policy amount to pay for child-related expenses.

End-of-life expenses

Your loved ones can also use the death benefit amount to pay for end-of-life expenses, including funeral costs. If you have never given much thought to how much these expenses are, you might be surprised to know traditional burial averages around $7,000 to $10,000 in Canada.  

If you do not have life insurance and pass away early, your loved ones will have to pay for these expenses. And if there are any unpaid medical bills, they will have to shoulder an even heavier financial burden. Taking out a life insurance policy helps you avoid such a situation. Your family can use the payout to cover all end-of-life expenses.  

College costs

The proceeds from your policy can help the surviving spouse to fund college tuition for children.

How to Find the Best Life Insurance Companies for Young Adults

Looking for the best life insurance overall? Here are three tips that will help you pick the best life insurance companies.

Compare rates

Comparison shopping is the only way to ensure you do not pay a penny more for life insurance coverage than you have to. Grab quotes from as many life insurance companies as you can to give yourself the best chance to save on premiums.

Read the fine print

Most term life insurance policies include the guaranteed renewability clause. Which means the insurer cannot turn down your request for renewing the policy (provided you are below the maximum renewal age). Also, the provider cannot factor in any changes in your health while calculating your renewal premium rate. While your premium is likely to go up at renewal, the increase will purely be due to age.

You should always pick a policy that includes this feature. If you do not, and your life insurance needs change down the line, you may find yourself in a bind, especially if you develop a hard-to-insure health condition. The life insurance companies can raise your price prohibitively or refuse to renew coverage, leaving you without protection at a time when you may need it most.

Check out the insurer’s financial health  

Life insurance is a long-term contract. It may be decades before your policy pays out. So, make sure the provider you pick is financially stable.

To determine how well a provider is doing financially, look at its AM Best rating — an independent agency specializing in rating life insurance companies based on their financial health. A high rating with AM Best means the insurer is strong financially, and you can count it to keep its promise whenever the time comes.

Why Get Life Insurance as a Young Adult?

Life insurance costs less when you buy it young compared to when you buy it later in life.

Purchasing life insurance in your 20’s or early 30’s allows you to lock in low rates for decades (in the case of term life insurance) or your entire life (in the case of a permanent life policy). And if you are looking to put a whole life plan in place, buying early will mean you will have more cash value to fund your retirement.

How Much Life Insurance Costs

Life insurance premiums rates are unique to the applicant. Two people of the same age are likely to receive different price quotes for the same coverage. That is because various factors influence premium rates, although age is one of the most important ones.

The younger you are, the lower the cost of life insurance. Buying a policy as early in life as possible is always a great strategy since you get to lock in a cheap premium rate for decades.

Apart from age, other factors that life insurance costs are:

Gender

Gender plays a significant role in determining premiums due to differences in average life expectancy.

In Canada, for instance, women have an average life expectancy of 84 years, while men have an average life expectancy of 80 years. As a result, women typically pay less for life insurance coverage than men, given the lower likelihood of insurers needing to pay out a claim within the policy term.

Health

Your health status and lifestyle choices are crucial factors in determining life insurance rates. Individuals who lead an active, healthy lifestyle generally live longer, reducing the risk to the insurer.

Conversely, certain health conditions, such as obesity, can shorten life expectancy and increase the likelihood of an early life insurance payout. Therefore, life insurance companies often offer better rates to those who maintain a healthy lifestyle, as it reduces their risk.

Smoking Status

Life expectancy is the basis of premium rates. And if there is one factor that impacts your lifespan significantly, it is tobacco use. Smokers have a greater risk of developing critical illnesses, like stroke and cancer. So, if you smoke, brace yourself for high life insurance rates.

Smoking rates can be two or three times higher than a non-smoking rate. How much more you will have to pay depends on your age, sex, and coverage amount. Generally speaking, the difference between the rates for smokers and non-smokers is not so much in the early years. That is all the more reason to buy life insurance policies when you are young.

Family medical history

Family medical history is a significant factor in determining premiums. Certain illnesses, such as diabetes, heart disease, and certain types of cancer, have been found to have a genetic component. If you have a family history of these conditions, it could indicate a higher risk of developing them yourself, which could result in higher premiums.

Additionally, genetic testing results can also be considered by some insurers, further emphasizing the importance of understanding your family's health history.

Occupation and hobby

Your occupation and hobbies play a crucial role in determining your life insurance premiums. Jobs that are considered high-risk, such as construction work, mining, or commercial fishing, could result in higher premiums due to the increased risk of injury or death.

Similarly, hobbies like skydiving, rock climbing, or motor racing are seen as high-risk activities. Insurers categorize these occupations and hobbies as "dangerous" due to the increased likelihood of severe injury or death, which could result in a claim.

Type of life insurance policy

Life insurance plans are either term life insurance or permanent life insurance also know as whole life. Term life insurance provides coverage for a specified period, such as 10, 20, or 30 years.

On the other hand, permanent life insurance offers lifelong coverage, as long as premiums are paid. Many permanent life insurance plans also include an investment component, known as cash value, which can grow over time. However, the added benefits of permanent life insurance come with higher premiums compared to term life insurance.

Policy term

The length of the policy term directly influences the premium rate.

Generally, the shorter the policy term, the lower the premium rate. This is because insurers are less likely to pay out on a shorter-term policy, such as a 10-year term, compared to a longer-term policy, like a 30-year term life insurance . Therefore, choosing a policy term should be a careful consideration based on your financial situation and coverage needs.

Policy amount

Last but not the least, the size of the death benefit impacts your premium rate. A larger death benefit means a higher risk for the insurer, and therefore, higher premiums. It's essential to balance the need for a sufficient death benefit to support your beneficiaries with the affordability of the premiums.

Conclusion

Life insurance is a crucial financial safety net if someone depends on your income or if you have shared debts. Term life insurance is often a good choice for many people due to its affordability and simplicity.

A whole life policy, however, may work well for someone who wants to start saving money for their retirement. Whether you are looking to buy a term life insurance or permanent life plan, Dundas Life can help you get the best rate.