I read (skim) a ton of articles on the internet about life insurance and most of them provide very little, if any, value and some of them offer terrible advice. This shouldn’t be terribly surprising, as life insurance tends to be a very personal topic and very few rules of thumb apply to everybody.
A common admonition is to never buy life insurance if you don’t need it. On the surface that may seem like sound advice, but things are not always as they seem. Most recent college graduates still living at home don’t “need” life insurance, but I submit that it is the very best time to buy it.
First, it will never be cheaper. Life insurance premiums increase with age, so by waiting until he/she needs it at say, hypothetically, age 30, the premium required for the same policy will be 25-40% higher than if it were obtained at age 22.
Additionally, one of the primary features of a whole life policy is that it will, at some point, require no out of pocket premiums to remain in force. When that point is is subject to a myriad of variables, but 15 years is a decent approximation. By procuring it at age 22, the person is already eight years in by the time he/she would hypothetically “need” it at age 30.
The second reason to procure it upon graduation is health. While the majority of people are in about the same health at 30 as they are at 22, that’s not guaranteed. In that case, instead of being 25-40% higher, the premium could be 50-100% higher, or in extreme cases, coverage could be unavailable.
So, yeah, waiting until you “need” it is not always the best advice. But I did come across an article that contained a great piece of advice, and that is to let your beneficiaries know that the coverage exists and where the policy is located.
In years gone by, John Doe’s beneficiary was often listed only as Mary Doe. In reality, Mary Doe could be John’s spouse, mother or sister. If John didn’t make Mary aware of the coverage, the insurance company could have trouble tracking down Mary.
Nowadays, insurance applications usually require the beneficiary’s social security number and date of birth, and sometimes even an address and phone number. But by the insured making the beneficiary aware of the coverage, the beneficiary will in all likelihood reach out to the insurance company.
So the takeaway from today’s message is to advise young people that they may want to consider acquiring life insurance before they “need” it and alert your own beneficiaries of the existence of coverage and the whereabouts of the physical policy.