By Elizabeth Renter
Despite what you've read, you and other millennials aren't all that unique. You'll have to deal with many of the same financial decisions younger adults have been facing for decades, even if you're making some of those decisions -- like starting a family -- a little later. And like generations of young adults before you, you are newcomers to term life insurance.
You might not need life insurance at all. If you have no dependents and money saved that could cover your funeral costs and any additional burdens your death might cause, you can go without. But if your death would put someone at a financial disadvantage, coverage is a very good idea.
You can't purchase life insurance as easily as you summon an Uber or text for a pizza delivery, but if you decide you need it, you can safeguard your assets and the people you care about with a little education, a little effort and surprisingly little money.
1. Life insurance serves many purposes
If someone depends on you financially, there's a good chance you'd leave them in a bind if you died without a life insurance policy. Even if you don't have a spouse or children, you might share financial accounts with a loved one. Or, you might help care for a sick family member or contribute toward your family's housework and bills.
People buy life insurance to pay the costs of their deaths -- both immediate and long-term. It can:
- Cover funeral and memorial costs.
- Replace your income.
- Help your loved ones hire people to provide services you provided.
- Pay off mortgage, credit card, loan and other debts.
- Pay your children's college tuition.
- Leave an inheritance.
If you're wondering about student loan debt, the government forgives federally guaranteed student loans in the event of a borrower's death. Private loans might be another story: Some lenders offer a death discharge and others don't, so check with your lender.
2. Term life insurance is cheapest when you're young
At this age, you can buy a high-value term life insurance policy for less than a gym membership. A healthy, tobacco-free 25-year-old can purchase a 20-year, $500,000 term life policy for about $15 per month, according to NerdWallet's analysis of average life insurance rates. If you don't have big expenses to cover after you've died, like a mortgage or college education for children, you might not need $500,000. If you decide you need a lower amount, it will cost even less. Even if you're not in top shape, you can pay less than $25 per month.
As you get older and your health risks increase, you'll pay more. Buying now locks in your rate for the length of your policy. If you're planning to have a family down the road and have no other urgent need for life insurance, you could wait so your policy is sure to last until your children are adults, or you could pay a bit more for a policy with a longer term. Both options will mean you pay a little bit more. A 20-year, $500,000 term life policy would only cost about $16 at age 35 or $30 by age 45, but will be close to $65 by age 55.
3. Getting a policy will not be instantaneous
Many life insurance companies haven't kept pace with technology and your do-it-yourself generation, according to NerdWallet life insurance expert Amy Danise. Some still don't offer online quotes and instead direct you to an agent -- very old school.
"People, and especially young adults, want to be able to purchase things quickly once they've made a buying decision, and get quick or instant product delivery," says Danise. "With most life insurance purchases, the application process can take several weeks and can involve answering the same questions over and over."
You can find online term life insurance quotes, but be prepared to follow your initial application with at least a few phone calls and a medical exam.
4. Life insurance isn't a one-size-fits-all solution
Your ideal life insurance policy probably isn't the same one that's right for your parents. Online tools like this one can help you nail down the best policy specifics given your needs. Base your coverage amount on the things you want your policy to pay for in the event of your death. The term -- or length of time it covers -- should be based on how long those costs will last.
For example, if you don't have children and have no plans for them, you may be buying a policy to cover your funeral costs and debts. If you have a 30-year mortgage, it makes sense to purchase a life insurance policy that would be in place as long as you're responsible for that loan. Likewise, if you're purchasing a policy to care for your aging parents in the event of your death, the term would reflect how long they might be dependent on your assistance.
As you shop for your first life insurance policy, there's much to learn about this important part of long-term financial planning. Don't be afraid to ask questions as you look for the right plan -- it's a purchase you'll live with for years to come.
Elizabeth Renter is a staff writer at NerdWallet, a personal finance website. Email: firstname.lastname@example.org. Twitter: @ElizabethRenter.