Life insurance is something many of us don't think about until we're older; however, taking out this type of cover earlier in our lives can be highly beneficial. Here, we explain why.
Life insurance may not be a priority for most young people. However, it is something that those aged 25 to 40 may want to consider, especially if you have certain commitments and other people depend on you. If, for example, you have a partner, life insurance can provide a vital safety net that can help them out financially should anything happen to you.
None of us know what will happen in the future and, while it is something we may not like to think about - especially at such a young age - injury or illness can affect anyone at any time. Life insurance means you will be able to look after the ones you love when you are unable to work and unable to rely on your usual source of income.
Regardless of your age, it is something you may want to start taking more seriously, and becomes all the more important once you find the person you wish to settle down with. For example, should you decide to buy a house together, you'll want to ensure that if something happens down the line and you're not around to pay the mortgage, your partner - and potentially children - are not at risk of losing the house. Should you pass away, life insurance will play an important role in making sure your family is taken care of financially.
This type of cover is also advisable for anyone, no matter their age, who has certain commitments to other people. For example, it might be a consideration if you live with parents who are financially dependent on you, if you have other loved ones that you want to help financially, if you have to cover any care costs or if you run a business and have to think about its future.
One of the major benefits of taking out life insurance at an early age is the cost. Simply put, it is cheaper to take it out now than if you delay until later in life. This is because life insurance costs are calculated based on how much of a risk you are to the insurer and how likely it is that they will be required to pay out.
If you are young and healthy, you will be deemed as less of a risk than someone who is older and faces health problems. Your premiums will therefore be cheaper.
Once you decide to take out life insurance, there are some other important decisions you will have to make. You will, for instance, need to think about how much you should insure yourself for. As a young person, your financial commitments may not be as high as you would anticipate them to be in the future - when you might have children (or more children), for example - and this increase should be accounted for.
If you are in a relationship, you should also consider whether you wish to take out two separate policies, or a joint one. While the latter tends to be cheaper, the policy will end when the first person dies, and it could also pose problems should you choose to separate later in life. Additionally, you will have to think about what length of term you would like your policy to cover; ordinarily you would want this to last for the duration of your mortgage.
Critical illness cover
Critical illness cover is a type of insurance designed to cover specific serious illnesses listed within a policy, and works by providing a tax-free lump sum to help pay for certain essentials - such as your mortgage, debts and house modifications - if you become seriously ill and unable to work.
It covers certain critical illnesses including cancer, heart attack, stroke and renal failure, and is important because it will help you and your family should illness mean you are unable to do your job.
Critical illness cover should be a consideration for younger people because, while we all like to think of ourselves as strong, fit and healthy - especially before we reach 40 - anyone can be hit by illness. As with life insurance, the younger you are when you get it, the cheaper it is. This is because it's possible to get your premiums guaranteed at your level of entry, even if you later become very ill.
You also have the option of having your premium reviewed at set times, usually every five years. If you suffer illness and haven't taken out any cover, the illness will not be included in any policy you do have in the future.
Income protection represents a means by which you can receive regular income if you are unable to work due to sickness or a disability. It will continue either until you return to your job or you choose to retire and typically protects against either accident and sickness only, unemployment only, or accident, sickness and unemployment.
You are able to protect up to 70% of your gross salary and you receive it in a tax-free monthly sum. It should be considered by any young people who would struggle to survive without an incoming salary, is self-employed or who has dependents.
Many people only look to take out income protection after a major lifestyle event, such as the birth of their child or taking out a mortgage. However, you do not necessarily have to wait so long, and it may be a good idea to take this route if you have essential bills to pay and feel that you would not be able to survive on state support alone.
Is it the right time for you?
Whether now is the right time for you to take out life insurance or not will depend on you, your financial goals and your current circumstances. If you have people who depend on you, who you want to be properly taken care of should anything unforeseen happen, then it is something to keep on your radar.
Critical illness cover and income protection represent two useful options that could prove invaluable for you and your family later in life, and should also be considered. Ultimately, it depends on your long-term financial plans and objectives, but life insurance could certainly form a sensible part of your strategy.