Young Adults and Life Insurance

Hypothetical of two students starting a Whole Life policy with a $100.00 monthly premium.  The hypothetical is based on two male students of different ages starting today with a current A+ rated carrier.

Age Started Cash Value age 28 Cash Value age 68 Death Benefit age 68
18 $20,063 $87,115 $154,875
23 $3255 $73,574 $131,886

Many young adults are not interested in Life Insurance (I know NEWS FLASH right), but their parents should be.  This is an area that is often neglected but before your young adult runs off to college or their career path, Life Insurance should enter into the conversation.  If you already gave them a head start by purchasing a policy when they were a child, now is the time to review a few things.  Is the amount still appropriate since things have changed?  If they are the atypical American student they will most likely be racking up some serious student loans.  At this point it is important to know that student loans are secured by the parents most of the time. they also cannot be erased by a bankruptcy. This may also be a time that they are off exploring the world and putting themselves into riskier situations then they normally would under Mom and Dad’s watchful eye.

Since they typically don’t have much in the way of assets and responsibilities it can often be hard for an agent to accurately determine an appropriate amount of insurance.  We will still be focusing mostly on the future endeavors of the young adult, but keeping in mind Life Insurance carriers do not underwrite for what that young adult might become and the financial liability they may have in the future.

For example, your son or daughter may be planning on becoming a physician and they will be third generation physician in the family.  There are certain thing that we could assume like: large student loans, a higher than average standard of living, they may have a million dollar home.   They will not underwrite for a  five million dollar face amount just because they have a bright future.  That student could also decide they don’t have a passion for it and become a starving artist.

However, if that same student made it into their residency and as a reward the parent named them as a part owner in the family practice.  They could easily cover them for multi-millions even though the student’s current income wouldn’t justify it. As long as they were looking to protect the business succession, the insurable interest would exist.

The bottom line is when we are talking about any financial tool the more time you have the better the potential results are in the end. Life Insurance is a great example of this rule.

The internal cost of the insurance is lower when you are younger and the cash value will have more time to grow for the intended goal.

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