If you were to ask a single person if they have purchased life insurance, don’t be surprised if they look at you blankly. It’s true that singles who are young and healthy rarely think about their own mortality yet alone life insurance, but here are some sobering facts:
The top leading causes of death for people between the ages 20 to 34 in the United States in December 2009, were accidents, suicide, homicide, cancer, diseases of the heart and HIV, according to the most recent mortality data issued by the National Vital Statistics System.
Tom Currey, President of the National Association of Insurance and Financial Advisors (NAIFA) understands this trend.
“The fact is, young people don’t feel they need life insurance,” says Currey. “It’s better to take a longer view because if you decide to get married in your thirties, you could have a health condition by then that may affect your life insurance rates. Also, you would not want the financial burden of your burial to fall on your family in the event of your death.”
Term is best
A 2006 survey by the National Association of Insurance Commissioners (NAIC) found that 35 percent of young singles have a life insurance policy. In addition, only 28 percent know the difference between term and whole life, while 27 percent are aware that buying life insurance now will guarantee coverage when they get older.
“Young singles should consider at the very least purchasing a term policy with guaranteed renewal,” suggests Al Lurty, Senior Vice President of Business Development at ING. “Term life insurance is still very affordable even though there has been a slight upward movement in rates recently. You can get rates that are .20 to .25 per $1,000 of coverage for a young, healthy single female on a 10-year plan.”
Brant Spesshardt, CFP and financial advisor for Dave Ramsey ELP, says that singles without children shouldn’t consider life insurance — unless there is a legitimate need.
“If their debt would fall on someone else who shares financial responsibility with them, then that would be a good reason to purchase life insurance. Also, if someone is relying on them financially [this doesn't necessarily have to be a child] then they should have a term policy,” says Spesshardt. “If none of this applies to their situation, they should focus their efforts on becoming debt-free rather than paying into an insurance policy they really don’t need.”
If you are single and in your 20s or 30s, here are few factors to think about when you consider owning a life insurance policy:
Health can be fleeting with age
If you purchase a term life policy now, you will be guaranteed insurability in the future. Life insurance policies increase in price with age, so if you lock in a policy while you are young and healthy, you can convert to a more permanent policy later when your circumstances change. Also, as you get older there is a possibility of developing a pre-existing medical condition that may affect affordability. In some cases, depending on the severity of the medical condition, you can be denied life insurance altogether.
The National Funeral Directors Association (NFDA) reported that the average cost of a funeral in 2010 was $7,323. Term life provides coverage starting from as low as $10,000 to more than $1 million. Term life would adequately pay for the cost of burial.
A 2009 National Postsecondary Student Aid Study published by the National Center for Education Statistics, found that between 2007 and 2008, two thirds of college graduates with four year degrees turned their tassels to the right side and left school buried in considerable loan debt. In four years, the average amount undergraduate and graduate students borrowed ranged from $27,000 to $114,000.
While Federal loans are forgiven in the event of death, a private loan may not have the same provision. Private loans are often taken out as a supplement to Federal loans and other sources of financial aid. If you are still a dependent and you’ve taken out a college loan from a private banking institution (Sallie Mae or a bank) with your parents as co-signers, keep in mind that if you were to die, they would be saddled with paying off the remainder of your the loan debt. A life insurance policy can be used to pay off the debt in full. It’s best to discuss with your lender if your school loan comes with debt cancellation at the time of death.
Life insurance can also be used to fund long-term goals.
“If they purchase a term policy and lock in rates at a young age now they are guaranteed insurability and will be able to convert the policy into a whole life insurance policy if their needs become more permanent such as opening a business or purchasing a home. If you were to die, life insurance can help pay off your business loan or mortgage obligations,” explains Brian Ashe, spokesperson for the LIFE Foundation.
Ashe adds that utilizing the cash value of a life insurance policy can be very attractive in terms of making loans available to the policyholder.
“You can accumulate substantial cash value through a life insurance policy and avoid having to deal with the typical loan approval process at a bank,” says Ashe. “You can also choose the terms of repayment and pay off the loan at any time. If you have the policy open for 10 years or more, the monies in the cash value would accumulate and you would have a sizeable down payment for a home or car loan.”
Home mortgage debt
What’s more, if you had a relative co-sign on a home mortgage and you died, they would be stuck with trying to pay off your mortgage. Co-signers are responsible for 100 percent of the debt, if something were to happen that might cause the loan to default. Life insurance can be used to cover the costs of a condo or home loan.