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Wednesday, 2 January 2013

Why buying life insurance young will save you thousands


There are pieces of advice that we hear so often, that we eventually start taking them for granted. We come to expect that the professionals offering us this advice will rightly remind us of these things from time to time, and that our response will be to pause, to say “I really should look into that sometime,” and most likely, to forget about it. That's certainly the way I've been responding for the past decade or so to my dentist's plea that I floss more regularly. Do I believe my dentist when she tells me that it will save me from various serious diseases in the long run? Absolutely...but I forget about it within days of resolving to do something about it.

I have a hunch that the same applies to the notion of buying life insurance: unless you are in the business, it probably isn't something that you think about daily. Every so often, you'll come across an article, or even meet someone from the industry, who mentions the importance of purchasing life insurance at a young age. You will likely see the logic in doing so, and may even resolve to add this to your to-do list. That said, because this isn't necessarily an urgent task, it may be pushed off until later, time and time again, until you forget about it. The following exercise is an attempt to remedy that; hopefully, in actually seeing figures applied to these scenarios, you will understand (in a memorable way) why life insurance should be among your priorities.

We'll start with the best hypothetical circumstance first: imagine that you are in your mid to late twenties, in good health, with goals and a vision for a successful future. If you fall into this category, you might actually be able to find plans as cheap as $15 a month. For the sake of this exercise, let us assume that you decide to begin investing in life insurance at the age of 25, and that you live to be 90. For 65 years, twelve payments a year (once per month) at $15 per month will cost you $11,700.

Let's contrast that with a scenario that may not be the absolute worst, but among the worse: imagine that you are now in your sixties—say, 65 years of age. The concept of good health is a relative term, because no matter how free of serious ailments you may be, things are still starting to slow down for you. Your insurance provider sees that, and it has a huge role to play in determining your rates. If you fall into this category, and are just deciding to invest in life insurance now, your rates could be as high as a staggering $150 per month. For the sake of a fair comparison, let us again assume a life expectancy of 90 years. This would mean that for 25 years, twelve payments a year (once per month) at $150 per month would cost you $45,000. This is more than triple what you would have paid if you had started investing at the age of 25, and gives you 40 years less of coverage!

The moral of the story is: heed the advice about buying life insurance when you're young. And floss every day, of course.

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