Purchasing Life Insurance Young
Updated: Oct 19, 2020
You may have heard someone say that the best time to buy life insurance is right now... But why is it best to buy now and not delay?
1. Life Insurance is based off of age
Life insurance rates are based off of mortality tables. Actuaries analyze data collected on mortality and come up with rates based upon how likely it is for someone to pass away at a certain age. It is a bit of common sense to say, the longer you live, the more likely it is that you are going to pass away in the next 5 years. (For example, we can likely agree that it is more likely for a 98 year old to pass away in the next 5 years than it is for a 32 year old.)
I had a real life example of this today. I had two clients call today looking for life insurance. Client A is 64, Client B is 23. Both are male and rated as standard non-tobacco users. Check out the difference in rates:
Client A (age 64) for UL with death benefit of $50,000- $1,850
Client B (age 23) for UL with death benefit of $50,000- $322
But wait.... won't Client A save because he is waiting 41 years before purchasing? He is saving 41 years of premium which we may think would offset the increase in annual premium. WRONG!
Client A- Lives to 85= 21*$1850= $38,850
Client B- Lives to 85= 62*$322= $19,964
2. Life Insurance is based off of health
Life insurance policies are underwritten for health issues as well as lifestyle issues. Most policies require a health exam and based off of those results the premiums are adjusted. The actuaries have also analyzed data related to specific conditions and can rate based off of medical history.
In general, we are healthiest when we are young. No one knows what the future may bring, but as you age, the chances of declined health increases. Unfortunately, with declined health comes increased premium.
3. Cash Value should grow with time
Many permanent policies have the option for a cash value. In the example set above, let's review the cash between client A and B at age 85.
Client A (currently age 64)- $26,581
Client B (currently age 23) - $36,436
These rules are not etched in stone. Of course, you may be able to find examples where it was better for an insured to wait before purchasing insurance (someone who has a health epiphany at age 32 and loses 50 lbs as an example), but I would argue those situations are few and far between. As a general rule of thumb... buy the life insurance now! If a better opportunity comes up in the future, you can always apply and change your policies!
*Illustrations are not-guaranteed. The cash value illustrations in this example are based off of a non-guarantee of 4.40% interest rate.
**Illustrations are unique to each individual. To get a life illustration tailored to your specific situation, please see a licensed life agent in your state.