Why Young Professionals Should Consider Life Insurance
It’s not surprising that life insurance may not be a priority for many Millennials. Career growth, home ownership, continuing education and marriage — life events that tend to be most top-of-mind for young professionals – shift thinking about risk management and delay consideration until later in life. Not to mention, why think of death when you’re young and healthy?
However, there isn’t a better time than young adulthood to opt for life insurance, as it can be a cornerstone of a strong financial plan. While needs may vary from person to person, here are five facts everyone should know when considering your purchase.
#1 Life insurance isn’t just about you. It’s about your loved ones too.
For many young people, more immediate expenses like rent, groceries and even vacations take priority over longer range financial needs like life insurance. But it’s important to keep in mind that a typical policy could ultimately cover larger expenses that you haven’t saved for, such as funeral costs, student loans or other types of outstanding debt, after you’re gone.
If you passed away today, could your parents or other family members afford to pay your student loans or credit card bills? It’s not often likely without taking on a hefty financial burden.
And if you have a family of your own, this link explains why it’s especially important to leave them with enough financial support to carry them into the future, not just immediately after your passing.
#2 The younger and healthier you are, the lower your premiums will likely be.
A common reason Millennials have for not buying life insurance is they can’t afford it. Yet, what most people overlook is that a policy is often easier to get and more affordable when you’re younger. Young people are less of a liability, as they tend to be healthier and less prone to illness. And depending on the policy, you may end up paying less over your lifetime when you start at a young age. Start soon and who knows, that premium could cost less than what you spend on takeout each month.
#3 There’s more than one type of policy.
Life insurance is available in two main varieties: term life insurance and permanent life insurance. Understanding the specifics of each can help you determine which one is best for you.
Term life insurance provides protection for a specific “term.” This can be a set number of years — 10, 20 and so on — or to a certain age. A Term policy is one of the most affordable types of life insurance as it can be purchased at lower premiums. However, when the term of the policy ends, so does your coverage. If you pass away after your policy terminates and you do not have a new one in place, your family will not receive benefits.
Permanent life insurance provides insurance protection for your entire life, as long as payments are made. Young people tend to shy away from this option, but a permanent life policy offers additional perks, including many living benefits in addition to the death benefit, that term policies do not.
#4 You can use permanent life insurance while you’re still alive.
In addition to the death benefit, a big advantage of permanent life insurance is accessibility to its cash value. As you pay premiums on your policy, you build cash value. After a period of time, you can take out this cash value or borrow against it. The cash can serve as a great resource in the future should you want to use it to pay for higher education, start a business, buy a home, supplement your retirement fund or use it for an emergency.
#5 Life insurance provided through your employer most likely isn’t enough.
Depending on your employer’s benefits package, a life insurance policy may be included. Although this is a great perk, supplemental, independent life insurance coverage is something to consider. In addition, most policies provided by employers aren’t enough to cover your family in the long term and you might not be able to take them with you if you leave — as they might not transfer from employer to employer.
As a young adult, your finances are one of your greatest responsibilities. Life insurance might seem unnecessary now, but when considered as part of your whole financial plan, it can help play an essential role for your (and your family’s) financial future.
SOURCE / DISCLOSURES
Each method of utilizing your policy’s cash value has advantages and disadvantages and is subject to different tax consequences. Surrenders of, withdrawals from and loans against a policy will reduce the policy’s cash surrender value and death benefit and may also affect any dividends paid on the policy. As a general rule, surrenders and withdrawals are taxable to the extent they exceed the cost basis of the policy, while loans are not taxable when taken. Loans taken against a life insurance policy can have adverse effects if not managed properly. Policy loans and automatic premium loans, including any accrued interest, must be repaid in cash or from policy values upon policy termination or the death of the insured. Repayment of loans from policy values (other than death proceeds) can potentially trigger a significant tax liability, and there may be little or no cash value remaining in the policy to pay the tax. If loans equal or exceed the cash value, the policy will terminate if additional cash payments are not made.
Policyowners should consult with their tax advisors about the potential impact of any surrenders, withdrawals or loans.
Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company (NM), Milwaukee, WI (life and disability insurance, annuities, and life insurance with long-term care benefits) and its subsidiaries.
Emily Holbrook is the director of the Young Personal Market for Northwestern Mutual. At Northwestern Mutual since 2008, she developed a passion for helping those just starting out on their financial paths. As an avid traveler, she knows what it’s like to work toward achieving your dreams, like taking surf lessons in Portugal. She received her bachelor’s degree and MBA from Marquette University and currently lives in Milwaukee, Wisconsin with her husband and their two young daughters.