Because life is unpredictable, it is crucial that we take precautions to ensure our future and the future of those we love. This is especially true in India, where family is extremely important. Purchasing a life insurance policy is among the most significant financial decisions that a young adult may make. In addition to acting as a safety net, life insurance also brings financial security, responsibility, and peace of mind.

What is Life Insurance for Young Adults?

Life insurance is intended to safeguard your assets and give you and your loved ones security, much like auto or home insurance. When the policyholder passes away, it provides beneficiaries with a payout, sometimes referred to as a death benefit. Young folks might purchase life insurance for a variety of reasons, including paying off debt, leaving a charitable donation, or making sure final costs are met.

Although many young folks may not think about life insurance at first, there are a number of strong arguments for doing so. The following are some main causes for purchasing life insurance:

• Financial protection for dependents: Ensuring that your loved ones, such as a spouse or children, are financially secure if something happens to you.
• Debt coverage: Helping to pay off any outstanding debts, like student loans or a mortgage, so that your family isn’t burdened.
• End-of-life expenses: Covering funeral and burial costs, which can be significant and alleviate financial stress for your family.
• Estate planning: Providing funds to cover estate taxes or to ensure a smooth transfer of assets.
• Charitable contributions: Leaving a legacy by making a financial gift to a cause or organization you care about.
• Build cash value: For policies with a cash value component, such as whole or universal life insurance, this can be a way to accumulate accessible funds over time.
• Locking in coverage and rates: Securing life insurance while young and healthy can result in lower premiums and guarantees coverage before any medical conditions might arise.

It’s crucial to remember that many insurers let you convert your term life insurance policy to a permanent one if, as a young adult, you prefer that your coverage last after the policy expires. This conversion can be helpful as it provides everlasting coverage and accumulates monetary value over time. Additionally, these policies often allow for conversion without requiring additional medical exams, making it easier to continue coverage despite any health changes.

Do Young Adults Need Life Insurance?

Young adults do not always require life insurance. Nonetheless, buying life insurance in your 20s and 30s may have a number of advantages. Some people view life insurance as a calculated addition to a larger financial strategy, with several benefits that may not be immediately clear.

Lock in affordable premiums

Generally, the younger and healthier you are, the lower your life insurance premiums will be. Life insurance for adults usually gets more expensive as you get older, so if you get life insurance when you’re young, you may be able to lock in lower premiums. This could save you from paying higher rates as you age or develop any health issues. If you purchase permanent life insurance when you’re young, your cash value portion will also have more time to accumulate interest or investment returns.

Avoid paying higher prices if your health deteriorates

Most life insurance policies require you to pass a health evaluation or medical exam before finalizing your eligibility and rate. If you have a pre-existing medical condition, it can affect the cost of coverage or even result in a denial. Once you are locked in with life insurance coverage, your insurance company cannot increase your premium if you develop a health issue. If your family has a chronic or genetic illness history, getting coverage early before you develop the condition may be a good way to guarantee yourself a lifetime of insurance before it becomes difficult to obtain coverage or too expensive.

Have more time to build cash value

A permanent life insurance policy may be an advantageous component of a long-term financial strategy for young adults. Unlike term insurance policies, which only offer coverage for a set period of time, permanent life insurance offers continuous coverage as long as premiums are paid.

One of the key features of permanent life insurance is a cash value component. With a cash value component, a portion of your premium is invested by the insurer and accrues value over time. Starting a permanent life insurance policy at a younger age can significantly enhance the potential growth of this cash value. This matured cash value can serve as a financial resource, allowing policyholders the option to borrow against it. However, it’s important to note that borrowing against the cash value will accrue interest, and any unpaid loans against the policy’s cash value could reduce the policy’s death benefit.

Read Also: The Ultimate Guide to Choosing the Right Insurance Policy

In many cases, young adults may want to first prioritize paying off high-interest debt and saving for retirement in traditional investment vehicles before looking at cash value life insurance. Life insurance is an insurance product, not an investment product.

Purchasing life insurance might not be your top concern as a young adult. You are, after all, more likely to be single, healthy, and devoid of dependent children at this point. Additionally, an entry-level position may put you on a restricted budget. Why pay excessive life insurance premiums at this point in your life?

Purchasing life insurance when you’re in your 20s or 30s can be a wise financial decision. Here are several justifications for thinking about getting life insurance at an early age.

1. Lock-in great rates
When you buy life insurance, your premiums remain the same for the duration of your policy, unless you change the amount of coverage. Buying Life insurance at a younger age locks in lower premiums and reduces the total amount you’ll spend on life insurance over the course of your lifetime. You simply can’t beat the life insurance rates you receive in your 20s and 30s.

Along with your age, your health is another determining factor in how much you pay for life insurance. Getting insured before any health conditions develop, such as high cholesterol or high blood pressure, lets you lock-in very affordable premiums for decades to come.

2. Protect your loved ones
You may have student loans, credit card debt or financing for a new car – and perhaps you’re considering buying your first place. If you were to die, life insurance can protect your parents or loan co-signers from the burden of paying off your debts.

If you’re in a relationship and have a mortgage, life insurance can protect the surviving partner from having to cover the remaining amount themselves, or losing the home entirely. Many young couples on a tight budget prefer a term life policy as an affordable way to get coverage for a set length of time – such as the length of your mortgage.

3. Build credit
If you opt for a permanent policy, you’re also building credit you can bank on. As the cash value of your policy grows, you’ll be able to borrow against it. The younger you buy a policy, the more time your policy will have to grow in value.

4. Put protection in place for the future
You may not have dependents now, but that could change in a few years. Investing now means you’ll have protection in place when your children, spouse or aging parents rely on your income. If you wait, it may be more difficult and expensive to get coverage.

5. Take advantage of discounts
If you have other insurance policies with The Co-operators, such as Auto or Home insurance, adding Life insurance can increase the discount you get on those policies, saving you money on your other insurance costs.

How to Make Money Off Life Insurance?

If you have a permanent life insurance policy that has collected a considerable amount of funds in its cash value, you can use that money while you’re living to pay premiums, take out a loan, or withdraw cash permanently. If you take enough withdrawals, the policy will be given up. By selling the insurance to another person, you might also be able to recover the monetary value.

You might wish to take use of your cash value to help pay for a grandchild’s college education, rebuild your home, or supplement your retirement income because it usually does not get transferred to your beneficiaries after your death.

However, it’s important to weigh your options carefully—the way you access your cash value will impact the amount available to you, your death benefit, and your account’s growth.

Though not all life insurance policies have one, many do have a cash value component. While most permanent policies have this characteristic, term policies do not.

Here are four common permanent life insurance plans that include cash value:

• Whole Life: Whole life comes with fixed premiums, a fixed death benefit, and a fixed interest rate. It offers predictability but lacks flexibility and limits your cash value’s growth potential.
• Universal Life (UL): UL lets you adjust your premium and death benefit, within certain limits, throughout your life. However, you have to ensure your policy stays properly funded or it can lapse. With these policies, the cash value grows based on market interest rates. The return can go up and down each year, in contrast to the fixed rate on whole life insurance.
• Indexed Universal Life: Indexed UL offers the flexible premiums and death benefits of UL policies, but differs in how the cash value growth works. A portion will be put into an account linked to an the performance of an equity index such as NASDAQ or the S&P 500. Your growth depends on the performance of the stock market index, though there is usually a minimum interest rate guaranteed.3 
• Variable Universal Life: Variable UL also comes with flexible premiums and death benefits. Additionally, it lets you invest your cash value into subaccounts similar to mutual funds. You’ll need to select your investments and manage them. This means more risk, including the possibility of losing cash value, but the potential for higher returns.

If you’re thinking about pulling cash out of your life insurance policy, here are five ways you can do so.

1. Cover Your Policy Premiums

The premiums on permanent life insurance policies can be expensive, ranging from a couple hundred dollars a month for a healthy 30-year-old paying for a $500,000 whole life policy, to four times that much for a healthy 60-year-old. One potential way to tap into your cash value is to use it to cover your life insurance premiums. 

Once your cash value reaches a certain point, some insurers and policies let you use it to pay for your coverage. This can be helpful if, for example, you retire and need to reduce your monthly expenses but want to keep your policy in place.

2. Take Out a Loan

Another option is to take out a life insurance loan against your cash value balance. Insurers often offer loans once policyholders have paid a certain amount into the policy. Life insurance loans can be helpful for those who want a low-cost, flexible way to tap into their cash value while keeping their coverage in place.

To apply, you’ll typically submit a form and verify your identity. No credit or income checks are required because the loan is guaranteed by your policy. You will not owe income tax for taking out cash value with loans, even if you borrow more than what you’ve paid in premiums—as long as you pay it back, either while alive or with the policy death benefit.

While cash value loans come with interest charges, the rates are typically lower than those on home equity or personal loans. The loan terms are also more lenient. You can often borrow up to 90% of your policy’s value and repay it whenever you want. 

However, an outstanding loan could reduce your cash value growth. And if you die before paying off the loan, the outstanding balance will be deducted from the death benefit your beneficiary receives.

3. Withdraw Funds

Another option is to withdraw funds from your policy. You can withdraw up to the amount you’ve paid without paying any income taxes. However, if you withdraw more than you paid in premiums, you will owe income tax on any earnings. 

In addition, a withdrawal will typically result in a reduction in your death benefit—sometimes for even more than you’ve taken out, depending on your policy. It will also set back the growth of your cash value account.

4. Surrender Your Policy for Cash

If you’re okay with ending your policy, you can cancel it and receive a surrender cash value payment. This payment may be a lump sum or it may be paid over time. 

While this can allow you to access a large portion of your cash value, you’ll no longer have life insurance coverage, so your beneficiary won’t receive a death benefit. Further, surrender fees and taxes could reduce the amount you receive.  

If you’re considering this route, contact your insurer to find out what your surrender value is and what fees apply. The fees are usually higher for newer policies and don’t apply after 10 to 15 years.

5. Sell Your Policy

You might also be able to sell your policy through a life settlement or viatical settlement. Both involve selling your life insurance policy to a third party for more than the cash surrender value but less than the death benefit. For example, Harbor Life Settlements says you can get up to 60% of the death benefit, and claims it helps customers get four to 11 times more than their cash surrender values.

Once a sale is complete, the buyer becomes responsible for paying your insurance premiums and maintenance fees for the rest of your life. Then, when you pass away, they receive the policy’s death benefit. 

If you want to explore this option, you can sell directly to a company or work with a broker that helps you get the best deal (and charges a commission to your buyer).