What type of life insurance is best for young people?

1 May2021

Why should young people consider life insurance?

If you are young you may not have thought about life insurance in much detail. Even if you consider it an important investment later in life, you may not think you need it yet. If you have no dependants, no mortgage and no other debts that could become someone else's responsibility after your death, you probably don't need it yet. You might need to start thinking about it once you take on more responsibility, however.

An advantage of buying life insurance at a younger age is that your premiums will probably be lower than if you purchase the insurance when you are older. This is because insurance is usually sold based on risk: if your insurer thinks they are less likely to pay out on your policy, you will be able to pay less.

So although you might not need life insurance before you start a family, once you start accumulating responsibilities it may be a good idea to consider life insurance.

What kind of life insurance is best?

There isn't necessarily a 'best' type of life insurance. As with all insurance, it depends on you as an individual and your needs. Different policies appeal to people for different reasons.

For example, level-term policies may be appealing because they are easy to understand. You pay a fixed amount per month and your dependants could receive a fixed amount in return. As a young, healthy person, you can pay much less each month than you would if you were older, for an equivalent payout. On many policies the monthly payment never changes, meaning you'll benefit from lower payments for the duration of the policy.

Decreasing-term policies work in a similar way, except the payment your family could receive decreases over time (which could be ideal if you have commitments that are decreasing over time, such as a mortgage). Monthly payments on a decreasing-term policy are usually cheaper than level-term policies.

Whole-of-life policies may seem slightly less appealing at first, because they tend to cost more. However, these policies are almost guaranteed to pay out on your death, which could bring a great deal of security to your family.

If you are not sure what kind of policy to get, you could even buy a term-based policy with a conversion option. This will mean that, as the end of your term policy approaches, you can choose to convert it into a whole-of-life policy.

Image iStockPhotos / Lisa-Blue

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Tags: life insurance, youth, young people, insurance, level term cover, decreasing, term cover, whole of life insurance

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