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Millennials and Life Insurance: Buyer’s Guide

Learn about millennials and life insurance — life insurance for millennials is more affordable than you may think. The average millennial can get a 20-year, $100,000 term policy for as low as $12.70/month.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer...

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UPDATED: Jul 9, 2020

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Here’s what you need to know…

  • Only 10 percent of millennials report having enough life insurance to meet their needs
  • The longer you wait to buy life insurance, the more expensive it will be
  • A life insurance policy is the best way to protect your family financially if you die unexpectedly

There seems to be a bit of a disconnect between millennials and life insurance. As a generation, millennials are woefully underinsured. Life insurance is the simplest way to protect your family from financial hardship, but a majority of millennial families are still at high risk.

Part of the problem with millennials and life insurance trends is a lack of life insurance info and misconceptions about the cost. As well as our life insurance frequently asked questions, this guide is designed to set the record straight and give you all the information you need.

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Shopping for Millennial Life Insurance Quotes

Life insurance is easier to buy and cheaper than you may think. Here are some important things to keep in mind before you set out into the life insurance marketplace.

Average Cost of Life Insurance for Millennials

According to the 2019 Insurance Barometer Study from Life Happens and LIMRA, regarding millennials life insurance statistics, 44 percent of millennials overestimate the cost at five times the actual amount. That overestimation is a large reason many don’t buy a policy.

Your life insurance costs will depend largely on what type of policy you choose. As discussed, a term policy will be significantly cheaper than a whole policy.

However, there can also be a lot of variation within those categories. Rates can rise or fall based on many different factors. You might be surprised how affordable life insurance might be for you.

Sample Rates

To give you an idea of how much life insurance coverage might cost you, here is a look at sample premiums for a non-smoker with one of the top-10 life insurers in the country.

First, check out the rates for term insurance:

Average Monthly 20-Year Term Life Insurance Rates by Age & Gender for Non-Smokers
Policyholder AgeRates for Male with $100,000 CoverageRates for Female with $100,000 CoverageRates for Male with $250,000 CoverageRates for Female with $250,000 CoverageRates for Male with $500,000 CoverageRates for Female with $500,000 Coverage
25$14.53$12.70$23.27$18.72$34.79$27.39
30$14.96$13.22$24.59$20.44$37.39$29.59
35$17.57$15.40$26.09$22.19$40.04$32.19
40$21.40$18.62$33.72$28.49$54.79$45.69
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Now, compare that to whole insurance:

Average Monthly Whole Life Insurance Rates by Age & Gender for Non-Smokers
Policyholder AgeRates for Male with $100,000 CoverageRates for Female with $100,000 CoverageRates for Male with $250,000 CoverageRates for Female with $250,000 CoverageRates for Male with $500,000 CoverageRates for Female with $500,000 Coverage
25$93.70$84.91$201.90$179.97$396.07$352.22
30$107.71$97.35$238.33$211.60$468.50$415.25
35$128.24$112.93$289.26$251.86$569.70$495.33
40$153.90$132.15$350.98$299.62$692.47$590.19
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Premiums on whole policies range anywhere from 200 to 600 percent higher than 20-year term policies at the same age and with an equal face value.

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How much coverage do you need?

A life insurance policy needs to cover two types of obligations: immediate and future. The most common among those are income replacement for a spouse, tuition savings for a child, mortgage balances, and miscellaneous debts.

A life insurance agent or financial planner can help you determine exactly how much coverage you’ll need, but there are simple formulas you can use to give yourself a general idea.

The DIME method for calculating life insurance coverage.

One popular method used by many online insurance calculators is the DIME method. DIME is an acronym which stands for the following:

  • D: Debt
  • I: Income
  • M: Mortgage
  • E: Education

Adding up your total obligations in those four categories will give you the minimum face value you need.

Imagine this is what your current obligations look like:

  • Debt: $5,000 car loan + $5,000 credit card + $7,500 funeral costs = $17,500
  • Income: $375,000
  • Mortgage: $80,000
  • Education: $30,000
  • Total need: $502,500

To meet all of those obligations, you need a life insurance policy with a face value of around $500,000.

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What is life insurance?

A life insurance policy is a contract between you and an insurer. In exchange for regular premium payments, the insurer promises to pay a lump sum settlement to your beneficiary after you die.

That money is typically used to cover funeral expenses, pay bills, and replace your lost income.

Do millennials buy life insurance?

As a whole, millennials are severely underinsured. According to the Life Happens and LIMRA study, about 60 percent of all people living in the United States either don’t have life insurance or don’t have enough.

Millennials represent a large portion. According to a recent study by New York Life, only 10 percent of millennials report having enough life insurance to cover their actual financial need.

Let’s take a look at some of the main reasons for that lack of life insurance.

Millennial Debt

Student loans represent the second-largest credit debt for Americans, trailing only mortgage loans. There is nearly $1,500,000,000,000 in student loan debt in the United States. The average Millennial is responsible for $35,359 of that total.

Credit card debt is also on the rise. There is currently an estimated $1,000,000,000,000 in credit card debt in the U.S., which breaks down to an average of $6,000 per cardholder.

Those debt payments don’t leave a lot of room for other expenses every month. The LIMRA study found that 61 percent of people don’t buy life insurance because they have other financial priorities.

Life insurance is one of the first expenses to be cut. Millennials either opt for no coverage or cheaper coverage that isn’t large enough to cover their need.

Millennial Life Stages

All of that debt seems to be having a ripple effect. Nationwide, millennials are delaying the major life events that most buy life insurance to protect. They aren’t getting married, having kids, or buying houses.

Without dependents or outstanding mortgage debt, many don’t see the need to buy life insurance.

Reasons Millennials Should Buy Life Insurance

The same reasons millennials don’t buy life insurance are ultimately the reasons that they should. Even if you don’t plan on having a family or buying a house any time soon, you should buy life insurance if you think it’s a possibility at any point in the future.

The longer you wait to buy life insurance, the more expensive it will be. You can save a lot of money buying now, even as a single millennial with few obligations. If you’re wondering when to buy life insurance, the answer is always now.

Debt Protection

Some debt goes away when you die, some doesn’t. If you do get married, your wife could be on the hook for shared debts. If your parents cosigned on student loans, they could be stuck with the bill.

A life insurance policy protects your loved ones from those expenses. They can pay them off in a single transaction with a life insurance payout. You can customize a policy to fit your specific debt needs. Don’t have a lot of debt but still want protection? You can buy a low-value policy for pennies a day.

Family Protection

If you do ultimately settle down and buy a house, a life insurance policy is the best way to protect your family from financial hardship if you die unexpectedly.

There is currently $9,500,000,000,000 in total outstanding mortgage debt in the United States. That translates to approximately $200,000 per borrower. Your family will be responsible for that debt, without your income to help pay for it.

A policy can also help replace that lost income. Your family could be eligible for some social security benefits, but they likely won’t be enough.

Currently, the average monthly survivor benefit is $1,470, which translates to $17,640/yr. At the same time, the average median household income in the United States is around $63,000. That’s a big shortfall.

Funeral Costs

Dying is expensive. The average funeral cost today is around $7,500. If you’re a millennial that ultimately does settle down and get married, your spouse will be stuck with that bill.

If you end up flying solo until the end, someone is going to have to pay those costs: parents, siblings, friends, etc.

A life insurance policy can make sure nobody else goes into debt giving you a proper sendoff. Even if you don’t have a mortgage or other large debt to justify a big policy, you can get a small-value final expense policy.

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How Life Insurance Works

Life insurance policies fall into one of two general categories: term or whole. Term insurance provides temporary coverage for a set period while whole insurance provides permanent coverage for as long as you live. The financial needs of your family, as well as your personal financial goals, can help you determine which type you need.

Watch the below video for a quick look at the basics of life insurance.

For a complete overview of each type of life insurance policy, be sure to check out our other in-depth guides.

Life Insurance Articles 2020:

But for now, here is a brief look at each.

Term Life Insurance

Term insurance provides coverage for a specified period, usually between 10 and 30 years. Once that period expires, the insurer cancels the coverage unless you opt to renew or convert the policy.

Term policies are generally meant to cover final expenses and outstanding debts in the event of an unexpected death. Term insurance is always cheaper than whole because there is a chance you’ll outlive the term and the insurer won’t have to pay.

Whole Life Insurance

Whole insurance (or permanent insurance) provides coverage for as long as you live. If your premiums are current, the insurer will pay a guaranteed benefit, regardless of when you die.

In addition to a guaranteed death benefit, most whole polices also include a savings account that builds a cash value either at a fixed interest rate or through investments similar to a retirement account.

Final Expense Insurance

Final expense policies are special whole policies with low face values designed specifically to cover funeral costs and not much else. Typical values range from $2,000-$25,000.

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Millennials & Life Insurance: The Bottom Line

The biggest roadblocks separating millennials and life insurance is a lack of information and cost.

We wrote this guide to solve the information problem. How did we do? If you still have questions, but sure to browse the many guides on this site, all of which have great insurance tips for millennials.

As far as cost, life insurance is cheaper than most millennials think. Bridge the gap between millennials and life insurance now — Use the free tool below to instantly compare quotes from multiple top insurers. Get started now!

Frequently Asked Questions: Millennials & Life Insurance

Here are the answers to some common questions about millennials and general insurance topics.

#1 – What do millennials think of insurance?

Millennials recognize the need for insurance, but finances deter them from buying.

Schwab’s 2019 Modern Wealth Index Survey found that 62 percent of millennials live paycheck to paycheck. Because of that, they prioritize cost over any other insurance factor. That is in part why so many are underinsured. They buy cheaper policies with lower face values.

#2 – What percentage of Millennials have life insurance?

LIMRA’s life insurance survey found that 70 percent of Millennial households own some form of life insurance, but 90% of those are underinsured.

#3 – What is debt-free insurance?

Some insurance companies have begun to market “debt-free life insurance” in recent years. That’s all it is: a marketing gimmick. A debt-free policy is a normal whole life policy that builds a cash value.

The advertising for the policy suggests that you can use the excess cash value to pay down debt (something you’ve always been able to do with your cash value).

#4 – How do Millennials market their life insurance?

Life insurance companies have realized that a large percentage of millennials first engage a company online. Many also like to handle all transactions completely online as well.

As a result, companies are ramping up online marketing. Some newer companies founded and operated by millennials (like Haven Life Insurance) even sell policies directly online, no agent needed.

References:

  1. https://www.limra.com/en/research/research-abstracts-public/2019/2019-insurance-barometer-study/
  2. https://www.bloomberg.com/press-releases/2018-11-13/new-study-says-millennials-most-at-risk-generation-when-it-comes-to-life-insurance
  3. https://www.newyorkfed.org/microeconomics/hhdc.html
  4. https://www.federalreserve.gov/releases/g19/current/
  5. https://www.aboutschwab.com/modernwealth2019

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