When you’re young and healthy, the last thing on your mind is life insurance. You’re enjoying those everyday moments—making plans on how to spend your time, not what to do if it’s cut short unexpectedly.
The fact is, life insurance matters, no matter where you are in life. But it’s particularly important for millennial families with young children. However, statistics show that millennials lack life insurance coverage.1 In fact, 75 percent of millennial parents (born between 1981 and 1998)2 do not have a personal life insurance policy.1 And some millennials (42 percent) don’t think their partner or spouse has enough life insurance.2
Without sufficient life insurance coverage, your family, your most important asset, may suffer from financial hardship should you pass away. Dealing with grief at any stage of your life is hard, but dealing with financial stress on top of grief can make it that much harder. Proper coverage can help alleviate the financial stress.
Why life insurance is important for young parents
More than 80 percent of babies in 2016 were born to a millennial parent.3 These young children have a long list of expenses ahead of them. Caring for their basic needs – like food, clothing, and shelter – gets more expensive with each passing year. Add to that the costs of daycare and schooling.
Life insurance can help pay for these expenses, perhaps even paying off a mortgage or covering your child’s education in its entirety. And, given the fact that you finished college not long ago, you might have a student loan that you still need to pay. Insurance can help pay it off, which may be a relief if you have a co-signer for your loan, such as your parent or spouse.4
Most importantly, life insurance can help your family maintain its current lifestyle during emotionally hard times. You don’t want your loved ones to worry about financial issues too.
Life insurance hurdles
So why don’t more millennials have insurance?
1. The knowledge factor
Life insurance isn’t as complicated as it might seem. Still, only about half of millennials say they understand it.1 Basically, it’s a contract (policy) between the insurer (life insurance company) and policy owner (you) who pays the insurer a premium to insure your life.5 If you die while the policy is in effect, your beneficiary (spouse, children, etc.) receives the death benefit.6
There are two types of insurance: term and permanent. Term insurance is generally the less expensive option and is in effect for the length of the specified term (usually 10, 20, or 30 years) in which a set premium is guaranteed. Once the term is over, so is the insurance coverage. Consider a term that would allow you the time needed to pay off your children’s expenses as well as provide enough savings for your spouse.
Permanent life insurance may provide coverage for your entire life and offers the potential to accumulate cash value tax-free. This cash value can be used on a tax-advantaged basis throughout your lifetime for expenses like travel, college tuition or supplemental retirement income.
2. The cost factor
Many millennials think life insurance is too expensive2 and overestimate the cost of life insurance. For example, in a recent study, the premium of a $250,000 term policy for a healthy 30-year-old amounted to about $160 a year. However, 44 percent of millennials guessed the annual cost to be $1,000.7
Also, many millennials (38 percent) think they wouldn’t qualify for coverage.2 However, they’re more likely than older generations to qualify and with better rates, since they have a longer life expectancy and are more likely to be healthy today.
3. The time factor
Working and caring for your family doesn’t leave you a lot of time for much else. That’s why it’s important to know that you can do research online or call a financial professional or advisor when it’s convenient for you. You also have the option to purchase a policy that doesn’t require a medical exam or testing (such as guaranteed issue or simplified underwriting) – 72 percent of millennials call the process “fast and easy.”2
Steps to take to get life insurance
Your work might offer free life insurance. If it does, take advantage of it. Just note that it’s probably not going to be enough coverage for your family’s needs. It typically amounts to one or two years’ worth of your salary.8 Also, if you leave your employer, this insurance doesn’t usually go with you to your next job. So, you’ll need additional insurance to subsidize it.7
Look into life insurance. You might be able to buy it from your employer who has already taken the time to research carriers and products. And you might not need to supply your medical information, if you’re a new employee.8 However, given your young age, you might find less expensive coverage on your own.
When purchasing insurance, consider buying enough to pay off the mortgage and send your kids to college. And most experts recommend that you have enough to cover seven years of your income.7
Life insurance is an important investment in your family and you want to be sure you’re getting a policy that serves your needs. So, don’t be afraid to talk to a financial professional—in person or over the phone—to help you understand what you need to do today for your family, so you don’t have to worry about tomorrow.