When you’re in your 20s, chances are you’re more focused on scoring a great apartment or getting a promotion than contemplating life insurance. After all, isn’t life insurance something your parents have? Life insurance in your 20s may not seem like something you need. 

There are probably more pressing financial concerns, like student loans and credit card bills. But — hear us out here — obtaining life insurance while you’re young can be a smart financial move. Among the reasons to buy life insurance: It can provide financial security for your loved ones, hedge against future debts, and, potentially, supplement your retirement savings. 

What are the types of life insurance?

The two options for a life insurance policy are term and whole life. Understanding this can be puzzling, so let’s dig into the details.

Term life insurance

A term life insurance policy covers you for a fixed period, or term. The most common durations are 20, 30, or 40 years. Throughout the term, you make regular payments on your premium. If you die during that period, your policy will usually pay out a tax-free cash sum to your beneficiaries.

When the term ends, you stop paying the premiums and the policy expires. You may wonder if you get money back if you outlive term insurance and the answer, unfortunately, is no, you do not. So, if you buy a 20-year policy when you’re 26 years old, what happens at the end of a 20-year life insurance policy? It terminates, and you’ll need to decide if you want to buy a new policy. But, term insurance is typically less expensive than a permanent policy. 

Whole life insurance

A whole life insurance policy is permanent coverage that remains in place until you pass away — i.e. for your whole life. It doesn’t matter how much time passes between the start of the policy and when you die. As long as you make regular payments, your beneficiaries receive a tax-free cash payment. 

Whole life can also include a savings element, called cash value, that allows you to earn interest on a portion of your policy. You may be able to borrow those funds or withdraw them for retirement. Whole life tends to be more expensive than term because it lasts your entire life.

3 situations to consider life insurance in your 20s

Sure, you’re young and healthy now, but there are good reasons to buy life insurance in your 20s. 

You’re getting married 

If you’re tying the knot — congratulations! — you’re making a lifelong commitment to your partner, and you want to make sure they’re financially secure. We know, life insurance isn’t really on your newlywed to-do list, but it’s a smart move. If you die before you can build up savings, a life insurance policy ensures your partner will have cash for household expenses and financial stability in your absence.   

You’re starting a family  

As a parent, you want to provide financially for your child. If you pass away while your children are young — and even if they’re out of the house — a life insurance death benefit can provide for their care, including medical expenses, housing, and education. We’re not trying to turn you into your parents (we love those commercials, too) but when you have kids, it’s time to take responsibility. Life insurance is a good step in that direction.

You have a lot of loans

Young Americans are carrying around a lot of debt. Nearly two-thirds of college grads have student loan debt. In 2019, the average borrower owed $28,950, according to the Institute for College Access and Success. Combine that with credit card debt, car loans, mortgages, and personal loans, and your liabilities can add up quickly. 

Generally, your beneficiaries could use the insurance proceeds to settle your outstanding debts. For example, federal student loans are usually discharged upon death, but private loans may not be. Also, mortgage loans still need to be paid and life insurance can help there, too. 

3 situations when you don’t need life insurance in your 20s

You have savings

If you’re already stashing away cash in savings, your 401(k), and investments, well done. You’re ahead of the game. If you’re able to save money now, you may not need to buy life insurance in your 20s. Instead, you save that money for retirement or pass it on to your beneficiaries.

You don’t plan to have a family

If you don’t see kids in your future, that may reduce your future financial obligations. You don’t need to think about paying for your kids’ big-ticket needs like healthcare or education. If you don’t have dependents who rely on you financially, it may not be necessary to buy a life insurance policy.

You don’t have loans

If you don’t have any outstanding debt from student loans, credit card payments, or personal loans, consider yourself among the lucky ones. When you don’t have creditors to repay, you’re better able to save money from your paycheck and contribute to your 401(k). That also means you might not need to get life insurance in your 20s.

Add “research life insurance” to your to-do list

We get it, life insurance isn’t a fun topic, but it is important. As you’re building your financial future, life insurance could give you peace of mind that your loved ones will be provided for when you’re not around … how’s that for adulting?