How Much Does Life Insurance Cost For a 20 Year Old?

When you are fresh out of college and have a hefty student loan to worry about, buying life insurance might not be the first priority on your financial checklist. But here is the thing about putting it off. Life insurance becomes more expensive as you age. Premium life insurance rates increase by 8-10% on average for each year you delay buying a policy. So why not lock in low monthly life insurance premiums while you can?

Life insurance for 20-year-olds is more affordable than you may think, especially term life insurance. In fact, young adults in good health may find a term policy for little more than the price of their monthly TV or music streaming service. Whole life insurance, by contrast, can be significantly more expensive. By locking into a life insurance policy as 20 year old, your life insurance premiums will be far less than the average life insurance cost.

Term life insurance is the purest and cheapest form of life insurance. The coverage lasts for a certain period, such as 10, 20, or 30 years. Should you pass away during the policy term, your beneficiary receives the death benefit. Whole life policies, on the other hand, do not come with an expiry date. They often also accumulate cash value, which you can tap into during your lifetime. But perks like lifelong coverage and cash value do not come cheap. Whole life insurance is five to 15 times costlier than term life insurance.

Continue reading to find out the advantages of buying coverage early and how much life insurance costs if you are in your 20’s.

Should I get life insurance in my 20’s?

Insurance companies offer young and healthy applicants the best rates. As you age, you are more likely to develop health issues that could raise your premiums or even prevent you from being approved at all. Is that alone a good enough reason to buy coverage in your 20’s? Perhaps. But there are several other benefits of getting a life insurance policy early in life as well.

Advantages  

Locks in low life insurance rates for decades

When you buy life insurance, your premium rate generally remains the same as long as your policy lasts. Purchasing a policy in your 20’s allows you to get a lower premium rate for decades. Although life insurance may not seem necessary at 20, having low life insurance costs at 60 is an advantage.

Protects your family from life’s what-ifs

If you are married or planning to get married soon, it is about time you think about your life insurance needs.

Ask yourself:

• How would my partner manage financially if something were to happen to me?
• Would they be able to maintain their current living standard?
• Would there be enough to cover end-of-life expenses?

A life insurance policy can make sure your spouse does not suffer financially if you are no longer around. The payout can help your partner cover funeral expenses and pay for living expenses.

If you have a child, that is all the more reason to buy life insurance. Your surviving spouse can use the death benefit to pay for childcare expenses and even fund college education when the time comes.

Takes care of your debts

Debts do not necessarily disappear when you pass away. For instance, if you have an unpaid private student loan with a parent as a co-signer, they will have to pay back the loan. Likewise, if you have taken out a joint mortgage with a spouse or a friend, they will be liable for paying off the loan in the event of your death. By buying a life insurance plan, you can ensure your loved ones will be able to cover any debts that would be passed on to them.

Term life insurance is generally a great option for young adults. Life insurance coverage can be tailored to last as long your longest debt.  Just ensure that policy is large enough to cover all your debts.

Start saving for retirement

Whole life insurance includes an investment component, called cash value. Thanks to this feature, you can use a whole life policy to fund your retirement. Since cash value builds gradually for the first several years before picking up pace, buying a whole life plan early means you will have more money when you retire.

Disadvantages

You will have to worry about an added expense

Life insurance is more affordable now, while you are young and in excellent health, than it may be some years down the line, but nevertheless it is an additional expense. If your financial situation is not great, you might not be able to afford to buy as much coverage as you need or any at all.

Traditional investment accounts offer better returns

While whole life insurance helps you build toward retirement, these policies generally give lower returns than traditional investment vehicles.

Factors that may affect the cost of your life insurance policy

Life insurance is a legal contract between you and an insurer in which you transfer the financial risk of death to them. In exchange for life insurance premiums, the provider promises to pay your loved ones a death benefit upon your death. The life insurance company calculates your life expectancy and sets your premium rates accordingly. Therefore, any factor that negatively impacts your life’s longevity will increase your premium rate.

Age

Life insurance premiums increase as you age. Statistically speaking, the older you get, the greater your risk of dying. So, it should come as no surprise that life insurance is cheapest when you are young and healthy. Term life insurance for 20-year-olds could cost less than a cup of coffee a day.

Gender

It is no secret that women generally live longer than men. For instance, the life expectancy for women in Canada is 84 while for men it is 80. All else being equal, women pay less for life insurance than men.

Health

Health is one of the most important factors for determining life insurance rates. A healthy lifestyle generally translates into lower life insurance premiums. Common risk factors include your body weight, smoking status, personal medical history, and family history.

Most life insurance plans require young applicants to answer a few simple health questions for eligibility.

The health questionnaire will include questions such as:

• Do certain illnesses (like diabetes) run in the family?
• Do you have a pre-existing condition?
• Do you have a history of critical medical conditions (such as stroke or heart attack)?

If the life insurance company classifies you as high risk on the basis of your answers, you may be asked to take a medical exam and/or obtain an attending physician statement.  

Smoking Status

Tobacco use is bad news for your health — and life insurance cost. Smokers have a shorter lifespan than non-smokers on average and as such pay more for life insurance.

Smoking rates can be up to five times higher than a non-smoking rate. But the good news is if you do not smoke for 12 months, you may get a better rate. And if you stay tobacco-free for three to five years, many life insurers will be willing to offer you a better rate.

If you are wondering whether vaping can increase your life insurance cost, the answer is yes. Most insurers treat vaping as they would smoking and charge a higher premium.

Occupation and Hobbies

Insurers take your occupation and hobbies into consideration when assessing your risk profile. A dangerous job, such as, fishing, could bump up your premium rate. The same goes for risky activities, like bungee jumping. While each life insurance company may define “dangerous” differently, it typically includes anything that significantly increases the risk of fatal injury or death.

If your job comes with a higher degree of risk, the provider may offer you a standard rate — especially if you are young — but add a flat fee to it. However, if you have an extremely risky career or hobby, life insurers may deny coverage altogether. For example, people working in coal mines or war zones often find it tough to get life insurance.

Type of life insurance policy

Term life insurance is the cheapest form of life insurance. The premiums can be as low as six to 10 times that of a comparable whole life insurance policy.

Permanent life insurance, on the other hand, is more expensive but, you will be covered for life. Life insurance products suit everyone differently so it is important to focus on your personal scenario when choosing a policy.

How much does life insurance cost?

How much you will have to pay for life insurance depends on your exact age, gender, health, smoking status, and the type of policy. Generally speaking, the rates do not radically change throughout your 20’s, but there is an increase.

For example, a 20-year-old female pays $25.65 a 30-year term life policy while a 29-year-old female pays $31.95. The price difference, however, is more in the case of smokers. Also, smokers in their 20’s pay approximately two times higher life insurance rates than non-smokers.

Is life insurance the right decision for me?

The answer is: it all depends on your personal and financial situation. If any of these statements hold true for you, life insurance may be right for you.

• You have a partner or a child whose financial feature you would like to secure
• You do not want your loved ones to pay for your end-of-life costs and funeral expenses
• You have taken out a joint mortgage with a friend and do not want them to be stuck with your share of loan should you die
• You have a co-signed debt and do not want the lender to come after the co-signer if you pass away before completely paying off the balance  
• You are maxing out your RRSP and looking for an additional investment option but do not want to invest in the market

What type of life insurance is best for 20 year olds?

Depending on your specific situation, it can be hard to identify how much coverage you need when you first purchase life insurance. We have given a rough idea below of when it's smart to buy term life insurance and when it's smart to buy permanent life insurance.

When to buy term life insurance:

a term life insurance policy is recommended for individuals who only need life insurance coverage for a specific amount of time e.g.(until student loans are paid off, until the mortgage is paid off). Term life insurance policies are also cheaper than other options which makes them a great choice for individuals who don't want to break the bank.

When to buy Permanent life insurance:

A permanent life insurance policy is recommended for anyone who is looking for life insurance that provides a guaranteed payout regardless of when you pass. Permanent life insurance policies are more expensive options so it is not recommended for someone looking to save money.

Conclusion

Life insurance is one of the best ways to protect your loved ones, and buying it young saves you money. How much life insurance costs depends on a number of factors, but one thing is certain: the younger and healthier you are, the cheaper the coverage.

Whether you are looking for a term life or whole life plan, Dundas Life can help you secure the best coverage at the best price.