Term life insurance is often the best for young adults because it’s the most affordable type of life insurance, although there’s no one type of life insurance that fits everyone’s needs—regardless of age.
There are many factors that go into determining the right type of policy. For example, the insurance needs of a person with a young family and a mortgage will look different from someone who is single, rents and has an elderly relative who relies on them financially.
When comparing options among the best life insurance companies, your choice will come down to two main types of life insurance: term life and permanent life. Both options can offer valuable benefits, but in different ways.
Term Life Insurance for Young Adults
Term life insurance allows you to lock in rates for a specified term. Typically, that’s 10, 15, 20, or 30 years. Young adults might also consider the 40-year term life insurance policies offered by Legal & General America (from its subsidiary Banner Life) and Protective.
If you die while the coverage is in force, the insurance company pays the death benefit to your beneficiaries. If you outlive the policy, it expires (if not renewed) and no benefits are paid. The cost of term life insurance is much lower than permanent life.
If you want to continue your coverage at the end of the term, you can typically renew the policy up to a certain age. But it’s generally not a great option because you should expect to pay significantly higher rates at each renewal.
Term life insurance can be a great choice for young adults who are budget conscious and want to ensure they have protection in place when financial obligations are often at their highest.
Permanent Life Insurance for Young Adults
Permanent life insurance can provide coverage for your entire lifetime, as long as premiums are paid. Like term insurance, a permanent life insurance policy pays out a death benefit to your beneficiaries when you die. Permanent life insurance also generally includes a cash value component that grows over time. A portion of the premiums you pay goes toward this cash value account, which you can borrow against, take a withdrawal or use it to pay premiums.
There are multiple types of permanent life insurance.
- Whole life insurance has fixed and guaranteed premiums, rate of return on cash value and death benefit.
- Universal life insurance offers the flexibility to adjust your premium payments (within certain parameters). There are three main types of universal life insurance: guaranteed universal, indexed universal and variable universal.
- Burial and final expense insurance is a small whole life insurance policy with a death benefit that’s usually between $5,000 and $25,000, and is designed to help cover funeral costs and final expenses.
- Survivorship life insurance is usually whole life insurance that insures two people but only pays out the death benefit when both have died.
Permanent life insurance costs more than term life insurance. Still, it’s an option for young adults who want a cash value life insurance policy or who have dependents who will rely on them indefinitely for financial support.
