It’s a common life insurance myth that most people need life insurance. Your life insurance policy can pay down debts that would otherwise burden your surviving spouse or kids. It can replace income you’ll never earn, preserving your family’s standard of living. It can cover the cost of major future expenses, such as college tuition.
But if you’re young and single, these benefits don’t really apply to you. So it’s fair to ask whether you need life insurance as a younger millennial.
Do Millennials Need a Life Insurance Policy?
The younger you are, the less likely you are to need life insurance right now. If you don’t have any dependents or significant debts and wouldn’t burden anyone with your death — financially, at least — then it’s not strictly necessary.
But life insurance coverage is cheaper when you’re younger. So if you apply for life insurance in your 20s or early 30s, you’ll save a boatload on premiums.
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That can make it tough to know whether to buy or not. All you can do is familiarize yourself with the pros and cons of purchasing life insurance.
Reasons to Buy Life Insurance as a Millennial
If you’re a millennial, you’re quickly hurtling toward the heart of adulthood. That means one or more of these reasons to buy life insurance probably applies to you.
You’re the Primary Breadwinner
If you earn the lion’s share of your household’s income, your premature death could put your family in dire straits.
That’s especially the case if your partner isn’t in a position to rapidly increase their earning power by taking on more hours at work or switching to a more lucrative career.
As the primary breadwinner responsible for your family’s financial security, you need enough life insurance to replace a significant share of your income for years to come. It doesn’t have to be a dollar-for-dollar replacement, but it should be enough to maintain your family’s standard of living and cover any major expenses you know lie ahead.
You’re in Debt
Debt is a significant determinant of how much life insurance you need. As a millennial, your biggest debts are likely to be:
- The balance left on your mortgage if you own a house
- Your remaining student loans
- Credit card balances you carry from month to month
- The balance remaining on your car loan
- Balances on other revolving accounts, such as a home equity line of credit
If the combined balance on all these debts exceeds the current value of your assets, your net worth is negative. You need at least enough life insurance to make up the difference so it doesn’t fall to your beneficiaries.
It’s More Affordable When You’re Young
Every birthday brings you one year closer to death.
That’s not morbid. It’s a fact of life. And insurance companies know it.
The younger you are when you get life insurance, the less likely you are to die during the policy’s term. Your life insurer takes on less risk and passes the savings to you through lower premiums.
To lock in those low premiums, apply for life insurance before you know exactly how your life will turn out. You can always apply for another policy later — and though your premiums will be higher then, you won’t need to buy as much.
You Can Skip the Medical Exam
You can get a life insurance policy without a medical exam at any stage of life. The catch is that when you’re older, no-exam policies have strict coverage limits. They’re generally marketed as final expenses insurance — suitable for covering your funeral costs, burial bill, and not much else.
Most people in their 20s, 30s, and early 40s qualify for substantial no-exam death benefits — in excess of $1 million in many cases. Only if you have a known medical condition likely to shorten your lifespan will your insurer require full medical underwriting.
No-exam insurance costs more than medically underwritten coverage, but the difference is often just a few dollars per month. That price could be worth paying if you’re incredibly busy or worry what an exam might reveal about your health.
Funerals Are Expensive
The typical funeral costs anywhere from $7,000 to $12,000, including burial fees and other miscellaneous expenses.
Many millennials don’t have that kind of cash lying around. If they do, it’s dwarfed by student loan debt and other obligations.
If you’re among them, the financial burden of your final sendoff will fall on your loved ones. Even a modest life insurance policy can alleviate that burden, giving your survivors one less thing to worry about as they grieve.
Reasons NOT to Buy Life Insurance as a Millennial
Don’t feel like you have to buy life insurance because everyone else is doing it. Although most millennials do need life insurance or soon will, there are certain circumstances under which you can skate by without it for now.
You’re Single With No Dependents
If you’re single and don’t have any kids or aging parents to take care of, your death is unlikely to create a significant financial burden for anyone.
Your friends and relatives might have to chip in or crowdfund a proper funeral and burial, sure. But you don’t have to worry about depriving anyone of the income you’ll never earn, and your estate will settle any outstanding debts after your death. If you don’t have enough money to pay off those debts, they’ll be discharged when your estate closes.
You’re Debt-Free & Aren’t the Primary Breadwinner in Your Household
If you’re like most millennials, you have some debt on your personal balance sheet: student loans, a mortgage, credit card bills, or maybe all of the above. The good news is that federal student loans die with you, no matter how much you owe. And if you don’t have any significant joint or co-signed private student loans or other debt, life insurance is a lot less important.
The same is true if you have a higher-earning partner who’ll be financially self-sufficient after your death.
What Type of Life Insurance Should Millennials Buy?
Life insurance policies fall into two categories: term life insurance and permanent life insurance, of which whole life insurance is the most common type.
The most crucial differences between term and whole life insurance concern how long the policy remains in force and the policy’s value while you’re still alive.
Term Life Insurance
Term life insurance is temporary. Every term life policy has an initial fixed term, usually with a fixed monthly or annual premium. You can renew the policy after the term ends, generally in one-year increments — but the premium is sure to spike if you do, so that rarely makes financial sense.
Term life insurance has no inherent value. If you outlive the term, the policy expires worthless and you get nothing unless your insurance contract allows for the return of premiums paid into the policy. If you die before the term expires, you get a death benefit equal to the policy’s coverage amount.
Whole Life Insurance
Whole life insurance lasts indefinitely. Your whole life policy remains in effect until you die or stop paying your premiums. Because it’s virtually guaranteed to pay out if kept in good standing, those premiums cost a lot more — typically five to 10 times as much as a term policy of the same size.
Whole life insurance builds cash value over time as well. You can borrow against this value or use it to cover premiums for a time. But it’s not a great investment — whole life’s cash value generally underperforms the stock market over long periods.
Which Is Better for Millennials?
Because term life insurance is cheaper and provides far more coverage, financial advisors generally advise millennials to buy it over whole life insurance. And while whole life’s cash value component is tempting for millennials who don’t plan to own their own homes, it’s not the best long-term investment.
How Much Life Insurance Do Millennials Need?
The average millennial needs more life insurance than the average Gen Xer or baby boomer. That’s because net worth is closely related to age, and millennials are younger than Gen Xers and baby boomers.
Exactly how much life insurance you need as a millennial depends on your specific life circumstances. Major factors to consider include:
- Your income and how you expect it to change in the future
- Your personal share of your household’s income
- How much debt you currently have or expect to take on in the future
- Whether you own a house or plan to buy one in the future
- Whether you have or plan to have kids and how many
There are several ways to calculate how much you need. One quick way is simply to multiply your current gross annual income by 10. That should leave your survivors with a significant benefit — $1 million if you earn $100,000 per year — without overdoing it on annual or monthly premiums.
But it’s best to do a more precise calculation based on your circumstances. To do that, find the best formula for you in our article on how to calculate your life insurance needs.
But how much life insurance you need changes over time. You can plan for that now — and get the lower monthly premiums that come with youth — by laddering your insurance. That just means taking out multiple smaller policies that add up to the coverage you need now so you can cancel them (step down your insurance) over time, reducing your total monthly cost and amount of coverage as you age.
If you have significant debt, support a growing family, or simply don’t want to be a burden on your surviving loved ones, you need to purchase life insurance.
Yes, even if you’re a millennial.
The next order of business is figuring out where to get this financial protection. Fortunately, plenty of life insurance companies cater to younger policyholders. Check out our list of the best life insurance companies for millennials and see what they can do for you.