Since age and health (along with the face amount) are the primary factors in determining the premium of a life insurance policy, it stands to reason that the best time to purchase life insurance is when you’re young and healthy.
A common objection to that statement is that it may not be needed when one is young and healthy; in many cases, that certainly is true. But this is where some basic knowledge and looking at the big picture can make a significant difference down the road.
For our example, let’s take a 22 year old recent college graduate. He/she may have no current need for life insurance, but, being reasonably intelligent, can foresee a time in the not too distant future where the need will probably arise. If, for purposes of our example, the time at which the need arises is age 30, let’s examine the differences of procuring the life insurance at age 22 versus waiting until age 30.
First, the premium for a 22 year old is about 2/3 the premium for a 30 year old with the same health status. Second, eight years’ worth of premiums would have already been paid. That is relevant because a whole life policy with a top rated mutual insurance company will eventually have enough equity to sustain itself indefinitely, i.e., it will require no out of pocket premiums to remain in force.
While those are two excellent reasons for buying the life insurance early, the most important reason is the uncertainty of future health status. In our example, we assumed a healthy 22 year old and an equally healthy 30 year old. While the odds are good that no major health issues will arise in the next eight years, that is not guaranteed.
Some people in their 20’s do develop health issues, from cancer to diabetes, from hypertension to high cholesterol, all of which can adversely impact the premium. So instead of being 1/3 higher as mentioned above, negative health issues could make it 50% or more higher. And in some cases (recently diagnosed cancer, for example) the malady could render the individual uninsurable, at least temporarily.
The counterargument is that insurance is an expense, should never be purchased until necessary, and that saving and/or investing the premium will produce a superior economic return. And although that sounds reasonable, it has two significant flaws, both of which relate to uncertainty.
First, as previously mentioned, there could be a change in health which could render the insurance unobtainable at the anticipated rate. Second, investing the premium isn’t a sure bet to beat the insurance return, especially over a short time span.
I’ve heard many excuses/objections to buying the insurance now, usually along the lines of quitting smoking, losing weight, or reducing blood pressure or cholesterol, all with the objective of obtaining a lower premium. Successfully doing any of those things could result in a lower premium, but again, the logic is flawed.
First, there’s no guarantee of success in accomplishing any of those things, despite the best of intentions. Second is the aforementioned potential decline in health. Third, if the insurance is procured at the higher rate (say smoker rates), the insurance company will lower it in the future once proof is furnished, in our example, that the insured no longer smokes.
So if young and healthy is the best time to buy the insurance, the second best time is NOW! And now you know why – because there is no guarantee that you will qualify for it in the future, and sometimes, that’s just too big a risk to take.