There’s a great line in the classic 1946 movie, It’s a Wonderful Life, in which an exasperated elderly man says, “Oh, youth is wasted on the young.” He’s exasperated not just because the two won’t kiss in the moonlight but because he thinks the young couple played by Jimmy Stewart and Donna Reed don’t realize just how good they have it.
Like a lot of older people, I suspect, he knows that if he could relive his youth, he’d do a few things differently.
I thought of that after having coffee with a friend of mine, who was lamenting that he wishes he had bought his life insurance when he was younger, and the rates were smaller, too.
Life insurance premiums, as you likely know, are a lot cheaper when you’re, say, 23, than when you’re 43.
In a way that can kind of seem a crazy strategy of the insurers. If you’re 23, you’re probably more inclined to take more risks with your life, like maybe skiing down a mountain after only a few lessons, whereas a 43-year-old with a wife or husband and kids would probably opt for skiing with the family on the bunny slope or hanging out at the fireplace.
On the other hand, when you’re 43, you’re much more likely than a 23-year-old to have some health conditioning weighing you down, like too much weight or high cholesterol. Like it or not, the older we get, the higher the monthly premiums become.
And so my friend was frustrated because he used to have a life insurance policy but stopped paying it during the Great Recession. Later, when his finances improved, and the guilt of not having a policy got to him, he took out another policy — and he was shocked to see how much more he was paying than he used to.
So he was griping to me that not only should he have managed to hang onto his old policy, he wishes he had started his life insurance when he was in his 20’s — before he was married (he’s divorced now) and had two daughters.
So is this a good idea? As a life insurance guy, I want to say yes, always. Buy life insurance early and often. Buy a few policies for your friends.
But, seriously, the answer is — as it often is in these cases — it depends. You talk to different people, and you’ll get different answers.
And then, as always, in these cases, you go for what makes sense to you. So here’s the argument for not buying life insurance when you’re young (it’s a good argument).
And then I’ll offer up the argument for buying life insurance when you’re young (spoiler alert: it’s also a good argument).
Why You Shouldn’t
If you’re really young and married, or you have children, then obviously the answer to, “Should you buy life insurance when you’re young,” is an automatic yes. That’s the answer. Collect your $200 and pass Go.
But if you are young, and you’re single, and there’s not a hint of romance in the air, a lot of smart people think it’s a waste of money to buy life insurance.
As Jimmy Williamson, a CPA financial planner from Gadsden, Alabama, eloquently puts it, “Life insurance should be bought to protect our loved ones who depend on us in the event of our untimely death… A single individual with no spouse and no kids, in my own personal opinion, would be better off financially over the longer term, to take the dollars that they would have put into insurance and instead put those dollars into their 401(k) plan and then purchase term insurance when they marry and do have children.”
Craig M. Steinhoff, another smart guy, a CPA who is based out of Youngstown, Ohio, also agrees with that line of thinking. “I personally believe that life insurance is only a requirement if people are counting on you to make an income to support them currently and into the future. For instance, if you have children.
Therefore, I wouldn’t recommend people without children to simply get life insurance just because the rates are low. As soon as you do have children who you’re going to support, I highly recommend evaluating and obtaining sufficient life insurance coverage.”
These are solid arguments for not getting life insurance too soon, and I don’t argue them. I do think that there are some cases — which I’ll make in a moment — where you can make a good case for buying life insurance when you don’t have dependents, and some cases, where you can make a very strong argument.
But, for instance, as Williamson said, that 401(k) is important. If you’re young and single, and you have extra money and no 401(k), then, by all means, get the 401(k) over life insurance. The life insurance can wait.
Besides, I’ll make another argument for not getting it. You could argue that it’s silly to get life insurance when you’re young and have no dependents because you don’t know what’s going to happen in the future.
And you would be right about that. Maybe you won’t get married. Maybe you won’t have children. Maybe, especially if marrying and having children is something you really want to have happen, that monthly or yearly life insurance premium will be a constant reminder of your failed hopes and dreams. Or maybe it’ll serve as a reminder that, hey, you should be trying to date more.
But, seriously, who knows? You may be insuring yourself only for, say, your parents or a sibling, if that’s who you have down as the beneficiary. On the other hand, if your parents have co-signed your student loans, you may want to cover yourself in the unlikely event something happened to you, so they aren’t stuck with all those loans.
And another, related reason not to buy life insurance too soon. Nobody likes to waste money.
Maybe something will happen to you when you’re young. Maybe suddenly a guy with a thick Spanish accent will suddenly appear, and hiss, “Hello. My name is Inigo Montoya. You killed my father. Prepare to die.”
Then, just as you remember that, why, yes, some time ago, you did kill Inigo Montoya’s father, that steel blade cuts through you, or you’re thrown off a cliff, the last thought you probably want going through your mind is, “Well, I’m still single, without dependents. I guess I didn’t have to buy that life insurance policy, after all…”
Why You Should
Some people believe it’s a waste of money, or that you could be doing better things with your money than paying for life insurance when you don’t have dependents, and if you feel that way, you’re right.
But if you think it’s smart to lock your rates in now, I also think you’re right.
First of all, how much lower are these life insurance rates in your 20’s, versus, say, your 40’s? Well, Williamson sent me a chart with average term life insurance rates for a person in their 20’s and 40’s, and it’s instructive to see how much you typically can save over the years.
For instance, if you are a non-smoking 49-year-old man, and you want a million dollar policy, you’ll typically pay $184.05 a month. A non-smoking 29-year-old, for the same policy, will pay $63.88 a month. If you’re, say, 23 years old, you pay even less, of course — on average, $55.36.
Now, $55 a month can be steep for a 23-year-old, and if you’re 23 and bogged down by student loans and have no 401(k), and you’re worrying about paying the rent, am I suggesting you buy life insurance?
No. Unless you have children.
But if you’re 23 and single without dependents, and you do have a good job, and solid income, and you’ve started your 401(k), then, yeah, I think there’s merit in considering buying life insurance.
Rodney Harano thinks so, too. Harano is a managing partner at CW Associates, an accounting firm in Honolulu, Hawaii.
“At what age does it make sense to buy life insurance?” Harano asks, mulling it over. “I think a good time to look into life insurance is when one graduates from college and enters the workforce. I bought my first policy upon graduation from college because I had the funds. When I became a CPA and joined the American Institute of CPAs, I bought more insurance through the Institute’s fabulous program because I now had a mortgage and a spouse. Then, when my kids came along, I tweaked my policies to make sure there was adequate coverage to fund their financial needs. For example, private school and college.”
In fact, Harano says:
“The bottom line is there is no right age to buy life insurance. As with any insurance buying decision, the prospective insured should assess what assets he or she are protecting.”
Exactly. And my friend, the one I had coffee with — and, seriously, I’m not making him up for the purposes of this blog — he exists — he’s floundered enough with his bills in his 30’s and 40’s, that he wishes he had protected himself better in his 20’s.
He says he always knew he was going to get married and have kids. It was always on his agenda. And if he had gotten his life insurance back then, and kept it, he’d have smaller monthly payments today. His younger self would have been looking out for his older self’s assets.
Final Thoughts
So should you buy life insurance when you’re young and without dependents? There’s no right or wrong answer.
But if you do lock in your rates now, your older self, the one with the mortgage and gray hair, will probably thank you.
And if you’ve somehow managed to get through life without seeing It’s a Wonderful Life or The Princess Bride (you did catch the earlier reference, right?), go now and watch those movies. And then you can thank me.
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