Your Finances Aren't Really in Order Until You've Done This

Look at you! You are young and healthy. Your credit score finally has a pulse, and maybe, just maybe, your full-time job isn't that bad and pays more than just the bills. You are totally rocking it and are in the prime of your life, which is why you really need to start thinking about term life insurance. Wait, what?

You should buy term life insurance when you are young

It seems a bit grim to think about death and the "what-ifs," when you expect to have many decades ahead of you. Also, who wants to compare term life quotes when you have a whole week of Hulu to catch up on? So, here's the nitty gritty.

  • Yes, you really need term-life insurance
  • The younger you are when you sign up, the more affordable it will be
  • Term life insurance will cost you less per month than you spend on coffee or pedicures

How much will term life insurance really cost?

Term life insurance sounds like a huge investment, right? Wrong! In fact, the average person thinks that term life insurance costs three times more than it does. A healthy 25-year old, non-smoking woman who wants a 30-year term for $100,000 will pay on average $11.46 per month. For a healthy, non-smoking, 25-year old male with the same coverage, it will cost about $13.56 a month.

If you want more coverage, you can purchase a $1 million 30-year term life policy in your twenties for about $55-75 a month. Getting this same policy almost triples in cost if you sign up for the same policy in your forties.

A million-dollar policy in your twenties, is that even necessary? Think about it. You might be single now at 26, but by 36 you could be married, with a mortgage and one or two children. At this point, you still have 20 years left on your policy. If anything happens to you before you turn 56, your family has $1 million to pay for funeral costs, mortgage costs, living costs, debt, college tuition, and more. Paying $60 a month for 30 years is only $21,600; this is a small amount in comparison to the $1 million in coverage you receive.

If you turn 56 and are still as healthy and lively as a 26-year-old, great. At this point in your life, most, if not all, of your children should be adults, your mortgage should be almost paid off, and you should have a healthy retirement account built up. If something happens to you now, you don't have to worry about if your spouse and children will be able to afford to eat and keep a roof over their heads.

Do I still need term life insurance if I am single?

Many experts will argue that you don't need to worry about term life insurance until you are married or have children. However, look at your current financial situation. Are any of your loans cosigned by a loved one? Would your parents be financially devastated if something were to happen to you – e.g. huge funeral costs? Do you plan on getting married or having children in the next five years?

If a friend or loved one agreed to cosign your student loans, auto loan, or personal loan, then they are on the hook for the total amount owed if something happens to you. The average 2016 graduate has $37,172 worth of student loan debt, which is a heavy burden to leave to someone else.

If you are debt-free and don't want to burden your family with funeral costs, you can either take out a lesser amount of insurance or enroll in your company's free level of term life insurance.

How much coverage do I need?

You don't have to take out a policy for $1 million if you don't want to, but you should think long term when calculating how much coverage you will need. If you already have a spouse, children, and a mortgage, then it is easier to calculate your needs. Generally, you will want seven to nine times your annual salary in coverage.

Think of term life insurance as you would auto insurance. Do you want to pay a monthly premium for it, especially when you don't use it? Of course, not. However, you will be relieved to have auto insurance in place when you get into an accident, and the insurance company covers thousands of dollars of damage. Unlike auto insurance, it isn't against the law if you forgo term life coverage, but if you are smart, you will lock in the best rates while you are young.