Why You Should Buy Life Insurance in Your 20s

When you’re in your mid-20s, you are most likely discovering your own financial independence. It is at this time in which one of your most important assets is your ability to make an income for yourself. So, what would you do if you lose that ability, even temporarily?

Life insurance helps to provide financial protection for when you pass on, get diagnosed with a terminal illness, or become totally and permanently disabled. This way, you won’t become a burden to your loved ones and you can also leave something behind for them as a legacy.

Yet most young professionals do not have life insurance coverage.  Some 70 percent of foreigners in Singapore, between the ages of 21 and 34 have not bought a life insurance policy, according to AXA research.  Coverage among young Singaporeans is only slightly better.

Yet while the last thing you may think you need when you’re in your twenties and single is life insurance, financial planners say this is exactly the time to invest in yourself and your (future) family.

Here are six reasons why:

1. Life Insurance is cheaper when you are young.

Life insurance premiums are based on several factors, including a person’s health and age. As a general rule, the amount you pay to purchase a life insurance policy rises as you age.  Rates can jump considerably if you wait until you are in your mid-thirties or forties.

This is because when you are still young, you are more likely to be healthier. You are more likely to develop serious illnesses as you grow older, resulting in higher insurance premiums as there is a higher probability that the insurer will have to make a pay out on the policy you purchased.

2. You are more likely to receive full coverage.

Most insurance policies have exemptions for pre-existing conditions, which means if you have a medical issue now, and buy insurance later, you won’t be covered for that condition.

Odds are you have fewer preconditions now, while you are young, than when you’re older. 

To ensure you are adequately covered, buy now.

“When you are young and healthy, you are still insurable,” says Joanna Chen, an AXA executive financial planner with more than a decade of industry experience.  “Usually, when you are in your 20s is the best time to get coverage.”

3. Financial Security

No one likes to think that an accident or critical illness could happen to them.  But what if it does?  What if your mobility is restricted or you cannot feed or bathe yourself? 

Life insurance policies can be purchase with a rider to cover total and permanent disability. This feature also ensures that you can focus on recuperating, even if it takes several years, without having to worry about how to pay for basic needs or family responsibilities.

This is important as when you are in your prime years, you might be one of the main breadwinners of your family and thus cannot risk losing income should anything unfortunate befall you.

4. Debt Coverage

Do you have student loans? If something happens to you, the unpaid balance might become your parents’ responsibility.  Same goes for any other loans that they may have co-signed, including credit cards.

If the unforeseen does happen to you, your life insurance pay out will help to cover such outstanding debt and your loved ones do not have to be burdened.

5. Funeral Costs

Funerals are more expensive than you think!  A simple funeral and cremation in Singapore can easily cost S$7000 - $10,000.  If you are a foreigner working in Singapore and would like to be buried in your home country, add on the cost of paperwork and embalming (a requirement if your body is to be flown) and transportation.

6. Low-risk Savings

Depending on the type of life insurance that you choose, the value may grow and accumulate cash value over time.  This is a relatively low-risk form of savings, as the insurance company typically bears the risk. Since you are still young and might have only recently entered the workforce, you might be less inclined to make high-risk investments, so this could be a good place to start.

This is called a participating whole life plan, which provides an additional, non-guaranteed pay out added to the sum assured. When a claim is made for a participating policy, your pay out will consist of not only the sum assured, but a variable bonus as well. Do note that due to this investment portion, a participating whole life policy will typically have a higher premium than a non-participating policy.

Types of Life Insurance

At this point, it’s important to understand that there are three main types of life insurance:  Term Life, Whole Life and Investment-Linked Policies (ILP). They all provide coverage for death and total and permanent disability.

Term Life provides coverage for a specific number of years. For example, you could buy a policy for the next five, twenty-five or even forty years.

Actually, there are also term life policies that extend for up to 99 years.  But why, do we mention 5, 25 and 40?  Well, in five years, you could be married and ready to upgrade your plan.  In twenty-five years, your first child may already financially-independent and no longer require your support.  And in forty years, you could be ready to retire and have savings set aside to cover your needs.

A whole life policy, on the other hand, provides coverage through the age of 99 without the option of choosing a shorter coverage period. The main difference between whole life and term life is that a whole life plan provides the potential to grow your savings, and the cash value returns one enjoys once the policy is claimed or surrendered.

Lastly, an investment-linked policy is a hybrid financial product. It provides both life insurance as well as wealth accumulation. ILPs offer basic life insurance and give payouts in the event of death or Total Permanent Disability (TPD). Some ILPs may also cover other conditions. For example, Inspire FlexiProtector provides coverage for terminal illness throughout your lifetime, with an option to add on critical illness cover. At the same time, ILPs may be able to help you grow your wealth faster than typical fixed deposits or savings accounts (although returns are not guaranteed).

Young professionals - particularly those who are at an earlier stage of their career – might be more likely to purchase a term life insurance policy, as the premiums are lower. However, everybody has different financial needs, so make sure you speak to your financial consultant before purchasing a policy.

How much insurance do you need?

Before purchasing a policy, you will want to determine the death benefit that your loved ones receive in the event that you pass away. 

A number of variables will factor into this decision, including your total liabilities (including school loans and other debts), the amount of money that your family will need (for example, if you provide your parents with a monthly allowance) and perhaps a sum to cover your funeral costs.

Don’t be daunted.  A certified AXA financial consultant can help you evaluate your needs and provide recommendations.

Financial Security

“Whether it is term life or whole life, people are buying for that piece of mind,” says Chen.  “We buy insurance because we have somebody we love, whether it is our parents or a child.  It is for our loved ones that we buy coverage for ourselves.” 

“Life insurance is a way to secure your own financial security,” she adds.  “If an accident happens that results in total permanent disability, you won’t want to be a financial burden to your loved ones.”

Don’t be caught unprepared.  Start your journey today to protect your most important asset - your ability to provide for yourself and your (current and future) family.

Disclaimer:

This article is for general information only and does not take into account the specific investment objectives, financial situation or needs of any particular person. The views expressed herein do not necessarily reflect the views of AXA Insurance Pte Ltd and should not be construed as the provision of advice or making of any recommendation. There is no intention to distribute, or offer to sell, or solicit any offer to purchase any product. We recommend that you seek the advice of a qualified financial advisory professional before making any decision to purchase an insurance or investment product. Whilst we have taken reasonable care to ensure that all information provided was obtained from reliable sources and correct at time of publishing, information may become outdated and opinions may change. We are not liable for any loss that may result from the access or use of the information herein provided.