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Life Insurance: Why You Must Have It In Your 20s

The term, “life insurance” may sound very daunting. When many people hear the words, the first thing that comes to mind is death. That may be true, but the term, “living benefit” should also ring a bell. Unlike other investment options, it offers Tax advantages, cash value benefits, retirement income, and Protection. It’s is just as important as Health, Auto, and Home insurance. However, life insurance offers living benefits that many people are not aware of.  The younger you buy-in, the greater the life benefits you will receive.Life insurance, written on a white board with a marker

According to Investopedia, it is very wise to invest in life insurance by 25 years of age. Purchasing it by 25 with the right policy is a smart investment, because a portion of the premium cost is invested into accounts that accumulate over a long period. This is also called the “Cash Value” benefit that policyholders buy into. Term Life insurance does not offer these cash value benefits. Like most conservative investment products, it takes decades to see a high rate of return. The three best types of life insurance policies to buy in your 20s that include cash value benefits are Whole life, Universal Life, and Variable. If you purchase it in your 20s, the Investment accounts accumulate at a very high rate and within 10-15 the cash value can be over 100,000. Please see the chart below.  At any given time a policyholder can withdraw the cash value money taxed- free.  Although, the premium monthly rate may be higher for the three selected policies they are the only policies with cash living benefits.

Whole Life Insurance:

This is exactly what it sounds like. It is Insurance that is provided for the entire life of the insured. It matures at age 100 and normally has a level face premium.  Whole life is often compared to buying a house. You can pay off your mortgage quicker with higher monthly payments and once it is paid you officially own the house. Similarly to whole life insurance, there are 4 different premiums one can buy that determines the duration of payments.  Limited, modified, and straight whole life. Regardless of the monthly payments, a policyholder is entitled to living benefits under this policy.

  • Limited Whole Life:

Premiums are payments limited to a certain period. Example with a 20 Pay-Policy, the insurer pays a high rate premium for 20 years and has no payments for the rest of their 80 years of life.

  • Modified Whole life:

Premiums stays at low in the early years and then increases at a fixed level for the remainder of the life policy.

  • Straight Whole Life:

Basic whole life policy with a level face amount and fixed premium payments for the insured’s lifetime.

Universal Life Insurance:

This offers the most control over Investment options. Unlike Whole life Insurance , itallows policyholders to determine the amount and frequency of premium payments which will adjust the policy face amount. Any surrender charges of this kind of insurance must be disclosed.

Advantages

  • Interest strategy Choices
  • Permanent coverage
  • Tax deferment

Disadvantages

  • Mortality Cost
  • Interest rates are conservative
  • Expensive Premiums

Variable Life insurance:

This was enacted to help cancel out the inflation on death benefits.  It has the same benefits as Whole life insurance but allows policyholders to manage their investment account portfolio. with a conservative investment account like bonds, index funds, and mutual funds. You will receive stock market returns and can use the “ cash value” results while living. Different from Whole Life Insurance because the Insurance company is responsible to manage the investments.

How It  Works:

  • A portion of the monthly  premium goes toward death benefits.
  • A portion of the premium goes toward the insurer’s investment fund (in some variable life insurance policies, others just use the self-managed fund).
  • A portion of the premium goes toward a second investment fund. This second investment fund allows the policy holder to select different investments from the insurer’s portfolio (such as stocks, bonds, equity funds, money market funds, and bond funds).

Best Life Insurance Companies in 2020

Prudential

Prudential logo

Best life insurance companies, prudential, chart

Find out more information here.

AIG Direct

AIG logo

Best life insurance companies, AIG Direct, chart

Find out more information here.

Fidelity

Fidelity logo

best life insurance companies, fidelity, chart

Find out more information at here.

John Hancock

john hancock logo

best life insurance companies, john hancock, chart

Find out more information here.

Purchasing life insurance while in your 20s is a very wise purchase. Insurance companies determine applicants’ policies by measuring their health. You’re less likely to have terminally illness in your youth years than over the age of 60. If you decided to wait until 36, married, and with children to purchase it, then your premium costs will be higher and the cash value benefits will be significantly lower.

Liked this article? Feel free to comment and check out The Best Financial Products For Investment In Your 20s.

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