When it comes to taking out life insurance, in general, the sooner you take out a policy, the better. The reason for this is that life insurance premiums become more expensive as you grow older. In actual fact, you can take out a life insurance policy for a child as soon as it is born. This type of policy would need to be paid for in full at the time it is purchased, and ownership for it would be passed to the child once he or she reaches the age of eighteen. The child then has the option of either adding to the policy, or cashing it in if it holds any value. If the policy is continued over the longer term then it could, in effect, be used to supplement any retirement income. If it is of value and the policy is cashed in then the funds could be used as, for example, a deposit for a property, or to pay university fees. However, the main purpose of a life insurance policy is actually to pay off any debts accrued during that individual’s lifetime, and to maintain an income for any surviving dependants.
Although life insurance should be purchased as early as possible, more than half of those individuals who own a policy are over the age of forty five. People under the age of thirty five tend to be more concerned with paying for current financial commitments rather than paying for premiums designed to pay off their debts when they die. According to research carried out recently in the US individuals between the age of eighteen and thirty five actually overestimated the cost of a life insurance policy by around 213 percent. Currently, just over half of US citizens have life insurance so it seems that, contrary to advice, many people delay taking out life insurance even though it is advantageous to take out a policy at an earlier age.
Nowadays, fewer people are marrying, although the number of households that rely on two incomes has actually doubled since the early 1960s. Over sixty percent of US households consisted of two wage earners in 2012; this is a thirty five percent increase from 1960. As more and more households rely on the earnings of two breadwinners life insurance should, in effect, become more popular. However, current figures suggest that the market for life insurance remains steady, and that life insurance is not a priority for many Americans; most give priority to payments for internet access and mobile phones!
If you do decide to wait until you are older to take out life insurance it will cost you more over the longer term. On average, a term policy taken out over a thirty year period with a guaranteed payout of $100,000 would cost around $156 per year for a male aged thirty years old. The cost per annum for a male ten years older would be $216. This means that a ten year delay in taking out life insurance would cost around $1800 over the full term of the policy. Similarly, if you were to wait until you were fifty five years old to take out term life insurance you would pay over $200 more per month than if you had taken it out at the age of twenty five.
Waiting until you are older before taking out life insurance can also affect your chances of taking out a policy in the first place. As we age we are more likely to develop health problems, and if you do develop a serious health problem you could see a significant rise in your premiums, or, alternatively, any application you make for life insurance could be declined.
In general, life insurance premiums rise by about eight to ten percent each year. When insurers calculate your premiums they first consider your health in general, and then your age. The longer you wait to take out a policy, the more likely you are to experience health problems; high blood pressure and high cholesterol are quite common in later life, as is weight gain which in itself can lead to health issues such as diabetes.
Generally, by taking out life insurance at a young age you can avoid a sudden, large rise in your premiums. However, you also need to take into account your financial circumstances at the time. Our twenties and thirties are often a time when our finances are severely stretched and you may not be able to afford the cost of life insurance premiums. Also, when you are younger you may simply not feel that you need the financial safety net that life insurance provides. If you have no significant debts (including a mortgage) and no dependents then you may see life insurance premiums as being an unnecessary expense. Although when it comes to taking out life insurance the advice given is usually ‘the sooner, the better’, purchasing this type of policy if very much an individual choice, and you need to consider your circumstances very carefully before you sign on the dotted line. If you are at all unsure about whether a life insurance policy if the right product for you consult an independent financial advisor, or insurance broker, for specialist advice.