When you’re 25, dying doesn’t really cross your mind. Like everyone else, I’ve pondered my mortality on occasion. But the idea of dropping dead any time soon? Far from my consciousness.
So why am I going to take out a life insurance policy? After all, in addition to being young I have
- No spouse
- No dependents
- No one who would suffer financially if I were to pass
With all that in mind, it might seem as though taking out a life insurance policy is a bit too forward looking. After doing some research, I have to disagree with that notion. A life insurance policy might be the sanest way to invest your money in such a volatile world.
Not really an investment
An investment is defined as an asset you hope will appreciate in the future. As we all know, and as many of us have learned the hard way, this appreciation is far from a guarantee. There is a risk involved with any investment, by definition.
Sure, there’s a risk in taking out a life insurance policy. The company underwriting the policy could go under. But that’s really about it. Put your money in a life insurance company that has been around through the fat and the lean times, and you’ll greatly mitigate that risk.
If you keep paying your premiums, you’ll eventually get the payout from the policy. That’s an important note to remember: Life insurance policies always pay out. That fact makes them complicated, but it also makes them a safer place to place your money than most investments.
How to use a life insurance policy
Once you take out a life insurance policy, you have a solid asset on your hands. You can use this asset for many purposes in the future, well before you die.
You can use it as:
- Cash. Yes, you can withdraw money from your life insurance policy. Unless your policy is mature, you’ll be charged a penalty for these early withdrawals. But if you need the cash, it’s there.
- Collateral. If you want to buy a house, you can use your policy as collateral. This is especially useful for first-time homebuyers who lack credit.
- Retirement. We’re told to put our money in 401(k) and Roth IRA accounts, but life insurance can be an even better vehicle to retirement.
It really does seem difficult to ignore the benefits of this highly useful asset.
Benefits of buying young
When you take out a life insurance policy in your 20s, you have many more options than someone in their 30s or 40s. For starters, it costs less to insure someone under the age of 30. Since 20somethings are typically healthy, you can get a good rate that would not be even close to attainable if you have healthy problems in your 40s. It’s an exponential difference in rates.
Locking in your premium is highly important. So important, in fact, that if you’re considering taking out a policy and you’re near your half birthday, you should make a decision quickly. Policies are written for the age to which you are closest. A day after your half birthday you’re closest to 26 if you’re 25, but a day before you get the premium of a 25-year-old.
It might sound weird, especially to my fellow 20somethings. Why take out a life insurance policy with no spouse, no dependents, and no one who clearly benefits from a payout? That’s the wrong way to think about life insurance. Instead we can think of it as a controllable asset that we can fund over time and benefit from greatly later in life. When I’m ready to get married and buy a house, I’ll have this asset at my disposal. It’s a bit more flexible than the investment options 20somethings are typically presented.
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