In the next 60 seconds, what would happen right now if you passed away versus what you would like to happen? What are you doing to prepare for passing? To assist in this challenging topic, we created a Complete Guide to Term Life Insurance for Millennials.
Quick Guide
- What is Term Life Insurance?
- Why Do Millennials Need Term Life Insurance?
- What Types of Term Life Insurance are Available?
- Explain a Term Conversion
- What Does Term Life Insurance Cost?
- How much Term Life Insurance Do I Need?
- How Do You Buy Term Life Insurance?
- Next Steps
What is Term Life Insurance?
Looking at the picture above, this is an oversimplification of Term Life Insurance. Term Life has a specific start date and a specific ending date.
Term Life is designed to take care of your immediate financial needs. Just because you pass away doesn’t mean your mortgage company or the utility companies will cut your family some slack for a few months.
Usually, a policy will have a life span of 5, 10, 20, or 30 years.
“Since 100 B.C. in ancient Rome, Caius Marius, a Roman military leader, created a burial club among his troops, so in the event of the unexpected death of a club member, other members would pay for the funeral expenses.”
[Taken from ThinkAdvisor.com]
Why Do Millennials Need Term Life Insurance?
If you have someone (anyone) at home right now that counts on you. Whether it’s a ride to school in the morning or sharing in regular monthly expenses (groceries, utilities, etc). You are why the Complete Guide to Term Life Insurance for Millennials was created. Not to sell you a life insurance policy.
It was created to inform and educate you on the need for life insurance.
The reality is, you don’t buy life insurance for you. You buy it for those at home.
Think of it like this, if you’re no longer in the picture, that’s one less income for your family. Life Insurance allows your family to replace your income.
Single Parents
Term Life Insurance would allow you to leave money for your kid(s) future education. It would give you the ability to leave money to the individual(s) that take custody of your kid(s). Money to assist in the day-to-day caring for your child.
Significant Other – No Kids
What impact would it have on your significant other if you went from two incomes to one? Could they lead the same lifestyle? Could they bear the current expenses/debt by themselves?
Significant Other – with Kids
If you have a significant other plus kids, you know it would change the family dynamics in many ways if you are no longer in the picture.
What Types of Term Life Insurance are Available?
Level Term
This is one of the more common types of Term Life Insurance. For example, you buy a 30 year Term Life policy on your 30th birthday. On your 60th birthday, providing you’re still alive, your policy would expire. You would not receive anything in return. Premiums are locked in throughout the life of the policy.
Return of Premium
Return of Premium Life policies work just like a Level Term policy would. It has a definitive start date and an exact end date. However, the difference is if you outlive the policy, you receive 100% of the premium back.
There are some Return of Premium policies out there where they add an endorsement to a Level Term policy and only give you a portion of the premium back assuming that you live longer than the policy.
Premiums are set for the duration of the policy. Premiums will be more expensive than a Level Term Policy.
Annual Renewable Term
Annual Renewable Term Life Insurance isn’t near as common as the other types of Term policies above. With an Annual Renewable Term your policy is year-to-year. At the end of the policy year you have the option to renew the policy without going through a medical exam to qualify. Generally your premium will increase each year.
The nice thing with this type of Term life insurance is it guarantees your insurability for a set number of years.
These are great if you have a short term need.
Decreasing Term
This type of policy works just like it sounds. Each year the Death Benefit decreases, but your premiums stay the same. A person might buy a Decreasing Term to mirror their financial responsibilities. Over time that debt will lessen, therefore you may not need as much insurance.
Decreasing Term Life Insurance is rare. Most people are better off with a standard Level Term life insurance policy.
Explain a Term Conversion
If you outlive a Term Life insurance policy you do not receive any benefits. The policy expires. In the case that you need life insurance at the end of you Term, you could buy a new Term Life policy or you could convert your Term policy to a Whole Life policy. Here are some things to consider when converting to Whole Life Insurance:
- You would have to convert the Term policy prior to the expiration date.
- Confirm with your agent that your Term policy may be converted to a Whole Life policy.
- Keep in mind, Whole Life Insurance is more expensive than a Term.
- No exam is required to when converting.
- You get to choose how much coverage when converting.
The key is not waiting until the last minute to convert your Term to Whole Life. This is one of the advantages to reviewing your life insurance annually. It allows you to plan and prepare.
What Does Term Life Insurance Cost?
What does Term Life Insurance cost for a millennial? Let’s take a look at a few real world examples for both male and female. The figures below are based on the following information:
- Face Amount: $1,000,000
- Insurance Company: Auto-Owners
- Type of Policy: Level Term Life Insurance
- Rated For: Preferred Rate class
- Non-tobacco
- All premiums below are monthly premiums
Term Life Insurance for Millennial Males
| AGE | 10 YEAR TERM | 20 YEAR TERM | 30 YEAR TERM |
|---|---|---|---|
| 25 | $56.76 | $59.34 | $119.54 |
| 35 | $65.36 | $80.84 | $160.82 |
| 45 | $86.00 | $117.82 | $295.84 |
Term Life Insurance for Millennial Females
| AGE | 10 YEAR TERM | 20 YEAR TERM | 30 YEAR TERM |
|---|---|---|---|
| 25 | $44.72 | $48.16 | $97.18 |
| 35 | $52.46 | $67.08 | $128.14 |
| 45 | $58.48 | $92.88 | $209.84 |
As you can see from the figures above, the younger you are, the less expensive life insurance is.
How Much Term Life Insurance Do I Need?
This will be different with everyone. That’s the beauty of life, no one is the same.
Ideally you want to be able to replace your income.
Think about what you owe money on (house, cars, student loans). Hopefully, you can comfortably afford what you have borred now.
Imagine your lifestyle on one income?
Ok, so maybe you could live on one income. Would you like your spouse to not fret over finances? Provide him/her some financial cushion?
By preparing a plan now (and keeping a pulse on that plan over time), will allow you to make decisions to maximize your money. Plus it safeguards your family in the event the sudden and unexpected does happen.
Here is a simple way to determine how much life insurance you need, click here.
You could also follow Dave Ramsey’s belief of having 8-10 times your annual income in life insurance.
READ MORE: How Much Life Insurance Do I Need?
How Do You Buy Term Life Insurance?
Insurance Agent vs Internet
For starters, you can use an insurance agent or buy online. Buying online from the comfort of your home, on your time can be great. But what if you don’t know what you’re doing or what you’re buying? Is Cliff from work really qualified to be giving you advice?
Working with an insurance agent is nice because it is their area of expertise. There are two types of insurance agents. Independent and Captive.
Independent insurance agents are able to shop with multiple insurance companies.
Captive insurance agents only represent one insurance company.
I believe it is important to have someone you can talk with. Someone you can ask questions.
Yes, you could do research online, but it’s still not the same as building a relationship with an individual.
Relationships
Remember the scene from the movie Groundhog Day when Bill Murray is walking down the street when his former classmate, Ned Ryerson, stops him out of the blue to catch up (and sell him life insurance)?
First off, not all insurance agents are obnoxious like Ned.
More important, you must have a relationship with your insurance agent. The relationship you form with your insurance agent shouldn’t be any different than your accountant, attorney, Realtor, doctor, or pastor.
If you feel like your insurance agent only wants to sell you a policy; turn and leave. Trust is a must.
Next Steps
Looking back to the first question, what would happen if you passed away right now versus what you would like to happen?
You have the ability to control the outcome of that question.
If you can’t afford to buy a $1 million dollar life policy today, don’t sweat it. Start with something. You can build upon it.
Take the first step forward. If you need to talk to someone, contact us here.
Photo by Janko Ferlic from Pexels.
