The Financial Product Millennials Are Missing

Millennials get told a lot of things about themselves. I just did a Google News search for “millennials” and found that not only are we more conservative than we think, but also that we don’t interact with others enough and that we’re (figuratively) ruining everything. And that’s just the first page of results!

As much as I hate to pile on to the trend by telling you about the big major financial product that you don’t have and absolutely can’t live without, I would be remiss to not tell you that you need life insurance. Last month was Life Insurance Awareness Month, but you need more than awareness: you need to act.

Depending on where you are in your life, you may already be thinking about life insurance. According to the 2016 Insurance Barometer Study by LIMRA, half of you already have some form of life insurance.

While 50% sounds like pretty good coverage, especially since not every millennial needs life insurance right now, a good portion of millennials are actually pretty nervous about it. 1 in 4 millennials say they don’t have enough life insurance coverage, and over 40% of millennials wish their spouse had more life insurance.

The number one reason millennials don’t buy more life insurance? They think it’s too expensive. But 80% of millennials overestimate how much it’s going to cost. So let’s start there.

Life insurance is less expensive than you think

According to the 2016 Insurance Barometer Study by LIMRA, millennials overestimate the cost of life insurance by a factor of three. Don’t worry – everyone overestimates the cost of life insurance – but it’s important to understand just how affordable life insurance can be.

LIMRA asked people to estimate how much the yearly cost of a term life insurance policy with a coverage amount of $250,000 would be for a healthy, non-smoking 30-year old. People under the age of thirty estimated that the coverage would cost $500 per year. The actual cost? $160 per year.

How does that match up with your expectation?

Some people may be overestimating the cost of life insurance because one type of insurance, called whole life insurance, can be up to four times the cost of term life insurance. As someone who has been working closely with life insurance experts and writing about life insurance for over two years, I can only suggest term life insurance, 1) because it’s more affordable and 2) because whole life is a weird hybrid investment product you don’t need.

If you’re married or have kids, you need life insurance

I know that just about every article about millennials frets over the fact that millennials are delaying marriage, there are plenty of us out there are that are a) getting married and b) having kids, with or without marriage.

The number one reason millennials own life insurance is to cover burial expenses. But that’s not the only reason you need life insurance. Think about all of the income your family will lose if you die. That’s income that would be paying off a mortgage or being put into a college savings account for your kids. Life insurance is the best way to protect your financial plan in the event that you die before you complete it.

Life insurance is sometimes referred to as a “self-completing” financial product. What does that mean, exactly? Well, let’s say you get a life insurance policy with $500,000 of coverage. If you buy a policy and then get hit by a bus the next day, your family will receive all $500,000 of that coverage. No matter where you are in the life of your policy, they’ll get that $500,000.

Compare that to your kids’ college fund. That fund is not self-completing. If you die, the balance just stays where it was when you got hit by that bus, regardless of what your ultimate goal was. With a life insurance policy, however, your survivors can fill up that fund, immediately completing your financial plan. The same concept holds true for your mortgage or any other debts or savings goals.

Your employer’s life insurance is not enough

According to LIMRA, almost half of millennials who own life insurance only have group life insurance (i.e. employer-provided life insurance). While life insurance is a great workplace perk, it is not enough coverage to protect an entire family.

Group life insurance coverage amounts are usually small, though you can purchase additional coverage through your employer. We don’t recommend it, however – you may get cheaper rates through a private insurer, and you’ll be able to take a private policy with you if you leave your job.

Even if you don’t have a family yet, it may make sense to buy now

Life insurance is more affordable the younger you are. Makes sense, right? As you get older, you get closer to death, statistically speaking (apologies if you didn’t already know this). That’s why it may be a good strategy to buy in your early thirties, either before you’re married or right after you get married.

Let’s put it this way: if you’re planning on getting married and having kids in the next five years, it may make sense to get a life insurance policy now to take advantage of low rates. This should definitely be on the radar for millennials above the age of thirty – between the ages of 35 and 45, life insurance costs can double. Make sure to lock in low rates while you’re still young.