 Personal Finance PowerPoint Presentation What age to get life insurance? Prepare to get financially fit by practicing personal finance? Insurance is part of our long-term risk mitigation strategy where we follow the adage of measure twice, cut once, put in a formal process in place, looking something like set the goals, develop a plan to reach them, put the plan in action, review the results and repeat the process periodically. Most of this information can be found at Investopedia, Best Age to Get Life Insurance, which you can find online. Take a look at the references, resources. Continue your research from there. This was by Tom or Tom. Tracy updated May 22, 2022. In prior presentations, we've been looking at insurance in general. Now we're looking at life insurance in conjunction with that overall discussion. Noting life insurance kind of falls into the traditional insurance bucket similar to say property insurance or liability insurance in that we can think about an event which possibly we're hoping doesn't happen in the future, possibly the likelihood low to happen in the future, but if did, would be financially catastrophic. Therefore, we might insure against it events such as house burning down, someone suing us for millions of dollars or dying prematurely. And obviously we're insuring against not our financial needs after death because we'll be dead. But the financial needs possibly of other people that are dependent on us, possibly the income stream that others were dependent upon, possibly there's some debt that we might have to be dealing with, possibly funeral costs and that kind of stuff could be things that we might be covering and with the life insurance. So what's the best age to get life insurance then? That's the question. Life insurance is a financial product that provides a lump sum cash payment known as the death benefit. So everything has its silver lining, right? So death has the death benefit. When the insured passes away, life insurance aims to mute any financial hardship that may arise from the lack of income the deceased will not earn any longer plus any outstanding debts or obligations of the decedents that must be repaid. So if you want to purchase a permanent insurance policy, we talked in the past about kinds of policy term versus permanent. We'll probably dive more into that in the future as well. But here we go with a cash value. You need to own it long enough for the cash benefit to grow. And a term policy is only set for a certain number of years. So the term policy has a set number of years, which again could make it a little bit easier to think about the term in that sense. And you might be able to kind of give a good idea of when people might be dependent upon you and your income threshold, for example, given just normal life expectancy and so on. But in any case, the right time to buy life insurance varies from person to person depending on family and financial circumstances. So obviously, you know, how many people are dependent on your income and so on and so forth will vary from place to place. You also might try to get life insurance before you have too many people dependent upon you or a lot of people dependent upon you to anticipate or possibly insure against the idea of some people being dependent upon you and then you're dying because you might be able to get a cheaper rate if you buy the insurance at an earlier time. So just a couple things to factor in with the age frame and when to buy. Generally, you need life insurance if other people depend on your income or if you have debt that will carry on after your death. So clearly, you would like to be able to say if people are dependent upon you that if I was to die prematurely, they will be cared for hopefully at least financially to some degree. So however, the older you get, the more expensive life insurance costs. Clearly, that would be the case generally if you think about kind of how the life insurance must be calculated. Basically, they're going to determine how likely it is that you're going to die and how likely it is that they're going to have to pay out the life insurance and if you're older, you're more likely to die. So if you buy it later, then it's probably going to cost more. A healthy, non-smoking 20-year-old will pay less than someone with the same health profile but who is 20 years older. Clearly, if you wait too long to purchase life insurance, not only is it more expensive, it can be harder to get the policy approved by an insurance underwriter. They're going to say, man, what are you talking about? You're on your death bed. We're not going to give you any life insurance at this point in time so you can see how this interplay works. So why younger is better? When it comes to timing, the younger you are when you buy life insurance, the better. This is because at a younger age, you'll qualify for lower premiums. So clearly, you'll be paying those premiums longer. So that's why the insurance company likes it too. But the idea here being that you're going to mitigate the risk of dying prematurely. And so if you can kind of lock in a lower rate if you're younger and you start purchasing the life insurance. And as you get older, you could develop health problems that make insurance more expensive or even disqualify you from purchasing a plan. So unlike with the medical insurance, like medical insurance, you've got this pre-existing condition term and they're saying, well, even if you're on your death bed, you can buy because insurance is becoming, there's a question as to whether it's a riot or privilege in terms of medical care and whatnot. With the life insurance, they're going to be like, no, do you smoke? Do you have a problem at this point in time? And they're going to take that and those are factors that could quite likely be taken into consideration. If you're on your death bed, it's going to be hard to get life insurance. Probably impossible at that time. So however, younger people face with mortgages, car payments, and student loan debt tend to put off buying life insurance. Obviously, when you're younger, you need the money, then you're probably taking on debt at that point in time. So paying life insurance isn't an easy decision at that time. While paying off current debt is critical, missing out on buying life insurance at a young age has a significant economic impact, much like delaying saving for retirement, the sooner it is purchased, the better. So when to purchase term insurance? So the term insurance is usually what most people recommend for individuals that are just buying life insurance because it's straightforward. You're buying life insurance. If you're not trying to do some kind of complicated tax strategy and so on, then term is probably a straightforward way to just buy life insurance. So term life insurance covers you for the term of the policy while younger is generally better when that term should start, may also be based on when you anticipate other people depending on your income. You'll want the term of the policy to last as long as your dependents will need your income. So you can usually get a fairly good estimate in terms of how long people might be dependent upon you because people die maybe at 100, 70 to 100 or something. So we can get a fairly decent idea. For parents, this is often until the children are grown. People in couples who own property together may want to be covered until their mortgage is paid off. So that would be nice because obviously if the mortgage is paid off, then that way that relieves a big financial debt and therefore if you die and your income is gone, then possibly it's not as much of a hardship if there's no mortgage to pay off. If both people in a couple are earning income that is critical to the family, then each should be covered. Parents who don't earn income may also want to consider coverage as their unpaid labor, child care, et cetera, might need to be replaced by paid services like daycare and the event of their death. Obviously if one parent dies, then you might need more child care service and so on and so forth. Life insurance may be prudent even before you have dependents if you have uninsured, unsecured debt such as credit card debt or some private student loans. For instance, credit card companies require that all outstanding balances be paid upon death of the holder. Example, 20 year term life premiums for 500,000 for a healthy male non-smoker. Smoking has become a big thing here. Obviously there's health factors related to smoking but you would think there'd be health factors related to other things that would be similar like obesity or something like that but they don't seem to concentrate on that. Smoking though, the smoking is going to be a factor. They're going to ask that question almost for sure. So age, so you got 25. The monthly premium, $31. The total cost, $7,440. If you get up to 30, now it's costing $33. Total cost, $7,920. $35, it's the $38. At the $40, $50. $45, $78. And $50, 118 for their example chart here. When to buy permanent life insurance? So now we're talking the permanent instead of the term life insurance and you want to think about what's appropriate for you term or permanent. What's the objective of your life insurance? Why you buying the life insurance? Is there some other strategy other than just life insurance that you're trying to package together, tax strategies and so on as you think about the different forms of life insurance, the permanent life insurance being more complicated to consider. So you want to put a little bit more thought into that and consider your goals if that's the angle you're going with. A permanent life insurance plan, the cash value grows tax deferred. So that's kind of the benefit here. So you might get that tax deferment which is part of the rationale. Premium contributions to whole life policies purchased at an early age can accumulate considerable value over the long term time as the cost of insurance is fixed for the entire term of the policy. Cash value can even be used as a down payment for a first home purchase. So if held long enough, what you accumulate may be able to supplement retirement income. However, the money needs time to grow which is why an early start is best. Cost of waiting for going life insurance purchases at a young age can be costly. The average cost of a 20 year level term policy with a $250,000 face amount is about $214 per year for a healthy 30 year old male. In contrast, the annual premium for a 40 year old male is about $486. The overall cost of delaying the purchase for 10 years is $2,720 over the life of the policy. Additionally, waiting to purchase life insurance can have a greater impact on an attempt to purchase a policy. Medical conditions are more likely to develop as an individual grows older. So it's going to be harder to get the policy when you're older. So if serious medical conditions arise, a policy can be rated by the life underwriter which could lead to higher premium payments or the possibility that the application for coverage can be declared declined outright. When is the best time to get life insurance? The younger and healthier you are, the lower the cost of a life insurance policy will be. That's the general rule. Makes sense, of course, given the calculations of the life insurance and so on. So possibly even if you don't have people that are dependent directly upon you at this point in time and you're still fairly young, you might still be saying, maybe you'll lock in a lower life insurance at this point in time or you could start to plan forward. So if you are thinking about starting a family, it is often smart to buy life insurance at that time, making it more affordable in the long run. What life insurance should I get when I have a baby? If you have children, life insurance can provide much needed financial support in the event of an untimely death in terms of amount. The death benefit should be enough to cover all of your existing debts and obligations, replace your income for the years that your children would still rely on you and be able to also pay for things like a college tuition. So when should I buy term life insurance? Term life insurance can be the more cost effective option when you only need the death benefits for a limited number of years and not for your entire life into old age. This will depend on everyone's own individual assessment and financial situation. Talk with an insurance agent or broker to help you decide what is best. When should I buy life insurance for my child? Life insurance policies can be taken out on children soon after they are born. A permanent life insurance policy for a young child will come with a far lower premium than when that person is an adult. So at age 18, you can then transfer the insurance policy over to the child so they will have coverage going forward. So you might be able to lock in the younger you are, obviously the cheaper the life insurance would be. And obviously if you lock in at a very early age on the life insurance and then you lock it in, then you can do all kinds of start smoking and basically have obesity and what not and all that and you already bought your life insurance so then you're good. So you probably still don't want to do that stuff in any case. But that is that. So should I buy life insurance when I am young and single? This all depends on if you think that you will start a family in the future. So you might try to insure against the event that a family happens. By the life insurance beforehand because of course it might be cheaper at that time. If so, it's good to buy insurance when you are younger when it is more affordable. So you can buy the insurance at that point in time and that would possibly help plan into the future and possibly make it more affordable at that point. So you may also want life insurance to establish an estate, gift to charity or repay debts and obligations upon your death whether or not. Whether or not you are single. So what's the bottom line? The longer you wait to buy life insurance the more expensive it will get more over. If you wait you run the risk of deteriorating health which may make you ineligible for some life insurance at that point. When you should get life insurance will depend on your personal and family situation along with your finances and obligations. But in general life insurance is less expensive when you are young. If money is tight a term life insurance policy can offer a financial safety net for your family. If you purchase permanent life insurance owning it over many years will give the cash value component of the policy time to grow.