Why would I even consider life insurance in my 20's?
Insurance probably isn’t something you want to spend too much time thinking about when you’re in your 20s. Sure, you’ve got car insurance and health cover, but life insurance? Surely that’s something for “future you” to think about some time after you hit 30, right?
Not necessarily. Taking out life insurance in your 20s can actually form a crucial part of any long-term strategy to build wealth. And while it might seem strange to take out cover when you’re young and healthy, there are plenty of benefits to buying life insurance in your 20s.
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What's in this guide?
- How much does life insurance cost in my 20's?
- Should I get life insurance in my 20s?
- Pros and cons of getting cover in your 20s
- What factors should I consider before getting a policy at this age?
- What are my options for cover?
- If I do get life insurance now, will I be able to hold that rate when I get older?
How much does life insurance cost in my 20's?
This is based on a few different factors. Below is a sample visualisation of how much you will pay as a 20 year old.
| Brand | Non-smoker | Smoker |
|---|---|---|
| MLC Insurance | $30.01 | $49.45 |
| ClearView LifeSolutions | $31.11 | $53.32 |
| BT Protection Plans | $33.37 | $52.69 |
| TAL Accelerated Protection | $33.91 | $51.19 |
| CommInsure Protection | $35.37 | $50.61 |
| OnePath OneCare | $35.89 | $48.25 |
| AMP Elevate | $36.31 | $55.70 |
| AMP Flexible Lifetime Protection | $36.48 | $55.23 |
| Zurich Wealth Protection | $36.74 | $56.40 |
| Zurich FutureWise | $38.14 | $55.79 |
| Asteron Life Complete | $38.31 | $58.03 |
| AIA Priority Protection | $41.98 | $66.09 |
Quotes are an estimate taken from our quote engine and are based on a 25 year old office worker from NSW. Data last checked on February 2017.
Should I get life insurance in my 20s?
If you’re young, fit and healthy, why would you want to consider getting life insurance? While it might not seem like the most exciting thing to spend your money on, buying life insurance still offers value and a range of benefits.
Circumstances where life insurance makes sense
There are plenty of other reasons why it’s a good idea to buy life insurance in your 20s:
- If you have debt. If you’ve just signed a mortgage on your first property, how will your partner be able to keep up with the repayments if you die? Or if your parents guaranteed your home loan and you don’t have life insurance cover, your death, serious illness or injury could put them under significant financial pressure.
- If you and your partner earn different incomes. If you earn $150,000 a year and your partner’s salary is $40,000, your death will place a huge strain on their ability to meet their living expenses. Having life insurance in place will allow your partner to maintain their lifestyle while they put their life back together.
- If you’re young and healthy. If you take out cover when you’re young and healthy, your life insurance premiums are much cheaper because you have a reduced risk of death, illness or injury. By locking in a low premium when you’re young and selecting level premiums, you could end up paying less for cover in the long run.
Consider it's benefits outside of death cover
Of course, it comes down to personal preference as to whether you take out life insurance in your 20s, but there are plenty of reasons why you should at least consider it. The simple fact is that you’re not invincible and you can’t predict the future. Accidents and illness can strike at any time and while the chances of you experiencing an early death are statistically quite small, do you really want to take the risk?
Life insurance isn’t only about providing a lump sum payout to your family when you die. If you suffer a serious illness or injury, life insurance can provide the financial support you need to support your loved ones, keep paying the mortgage and cover any medical and rehabilitation expenses.
Pros and cons of getting cover in your 20s
Pros
- Provide for your loved ones. If you have a partner or any dependants, taking out life insurance cover ensures that you can provide for them even if you’re no longer around.
- Pay off debt. Buying life insurance in your 20s means your loved ones won’t have to foot the bill for your credit card debts, car loans or student debts, if you pass away.
- Cover other costs. Life insurance provides crucial financial support to cover everything from funeral costs and medical expenses to mortgage repayments. It will also provide replacement income to maintain your family’s standard of living.
- It’s cheaper. Because you’re young and healthy, taking out life insurance in your 20s is much cheaper than doing it later in life.
- Peace of mind. Buying life insurance in your 20s means you can enjoy guaranteed protection for life, which provides security and peace of mind.
- Improve your credit rating. If you have life insurance protection in place, this can help boost your credit rating and improve your chances of being approved for a home loan.
Cons
- More important things. There may be more important (or perhaps more exciting) things to spend your money on, such as a round-the-world holiday.
- You may already be covered. Many Australians already have some level of life insurance cover in place through their superannuation fund. Depending on your circumstances, the cover provided through super may be adequate for your needs.
What factors should I consider before getting a policy at this age?
There are several factors you need to consider before choosing a life insurance policy:
- Your income. Consider how important your income is for you and your loved ones, not only for things like a mortgage or rent payments but also your day-to-day living expenses. If you died or suffered a serious medical problem and could no longer work, would your loved ones be able to manage financially?
- Your debts. Many of us spend a large part of our 20s running up sizable debts, from HELP debt and credit card bills to car loans and home loans. If you were to die unexpectedly, who would be responsible for paying off your debt? Or if you were sick or injured and unable to work, would you have the financial means to keep up with your debt repayments?
- Your family structure. Next, consider your loved ones and the potential benefits life insurance could provide. If you’re married or if you have a couple of kids, taking out life insurance can ensure that your loved ones are looked after even if you’re no longer able to provide an income.
- Other insurance. Check to see what other forms of insurance cover you already have in place, for example through your superannuation fund. A default level of life insurance cover is automatically provided by many Australian super funds, so if you already have cover in place you may not need a separate life insurance policy.
- Your career. How safe is your workplace? Does your occupation place you at a higher risk of suffering a serious illness or injury? Is the income you earn essential for the financial wellbeing of you and your loved ones?
- The types of cover available. Remember that life insurance is about much more than just paying a death benefit to your loved ones when you pass away. You can also take out cover for serious illness or injury, total and permanent disablement, and replacement income if you’re sick or injured and unable to work.
Taking the time to consider your personal circumstances, and how you and your loved ones would be able to cope if your situation changed will help give you a clear idea of how much life insurance cover you need and what type of policy will work best.
What are my options for cover?
- Life insurance. Life cover pays a lump sum benefit to your nominated beneficiaries when you die or are diagnosed with a terminal illness. Your loved ones can use the policy proceeds however they wish. They can use it to pay off debts, cover the cost of your children’s education or simply maintain their current standard of living.
- Income protection insurance (Most ideal at this stage in life). If you’re sick or injured and unable to work for an extended period of time, income protection pays an ongoing monthly benefit to replace your income. Most insurers will pay benefits equal to 75% of your regular income, allowing you to continue to pay bills and provide for your family while you focus in getting back on your feet.
- Trauma insurance. If you suffer a serious medical event or condition, for example a heart attack, stroke, or cancer, trauma insurance (also known as critical illness insurance) provides a lump sum payment. You can use this benefit to repay debts, pay ongoing bills, cover medical and rehabilitation costs, and manage any other expenses associated with your recovery or your changed circumstances.
- TPD insurance. TPD stands for total and permanent disablement, and this type of policy offers financial protection for you and your family if you become permanently disabled and are unlikely to ever work again. TPD insurance provides a lump sum benefit that you can use to make home modifications, maintain your standard of living and repay any debts.
How your life insurance needs change with each stage of life
If I do get life insurance now, will I be able to hold that rate when I get older?
One of the benefits of taking out life insurance in your 20s is that it’s cheaper to purchase cover now than when you’re older. Because you’re fit and healthy, the chances of you dying or suffering a serious illness or injury are quite low, which reduces your premiums.
Make sure you choose a level premium
However, you’ll only be able to keep this low premium rate as you get older if you choose a life insurance policy with level premiums. As the name implies, the premiums on this type of policy remain the same and do not increase as you age.
This is different to a policy with stepped premiums, where the insurer reviews your policy each year and calculates your premium based on your level of risk. As a result, stepped premiums can increase substantially as you get older.
Take note of indexation in your policy
Finally, it’s worth mentioning that even if you have life insurance with level premiums, your premium amount may increase slightly each year if indexing is automatically included. This built-in feature ensures that your cover keeps pace with the rising cost of living, and premiums are indexed in relation to one of the following:
- The annual change in the Consumer Price Index (CPI)
- Inflation
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