When's The Best Time To Apply For Life Insurance?
The best time to apply for life insurance is in your twenties, bar-none. Why? Whether you opt for whole life insurance or 30-year term, if you apply in your twenties you’ll:
This is regardless if you’re married and have children, whether you’re twenty or twenty-nine.
Now, we’ll go easy on you and admit that if you’re still covered under your parents’ insurance (up to age 26 in most states), then waiting to sort out your health and life insurance around age 25 isn’t a bad bet. And if college debt, car payments, a minimum wage job, or what-have-you has got you second-guessing additional monthly payments, we’ll level with you:
While we can’t technically hand out what your premium would be if you started paying in your twenties vs. if you decide to pay later on in life (there’s regulations about these things), we can tell you that a ballpark average for a twentysomething applying for good life insurance usually lands between $35-$50 a month. Do you know what that looks like? Two nights eating out + a Netflix or Spotify account.
The idea of possibly cutting back making you antsy? While everyone’s situation is different, we tend to err on the side of “don’t sweat the small stuff.” We’re going to drop the name of a guy who doesn’t even know our insurance company exists (Ramit Sethi) and let you chew on this principle:
It’s called the Big Wins Manifesto, and we love it for so much more than the fact it basically says, “Hey! Why give up the $5 lattes [and the much-needed life insurance] when you can focus on the big investments that will actually get you ahead?” While the focus of this article isn’t career-based financial planning (and we’ll just link Sethi’s manifesto so you can learn from and support his ideas yourself!), it’s worth looking into as you start making financial decisions for you--and not as a shoulda-woulda-coulda from a random financial expert.
What If I’m Not In My Twenties?
No, you don’t start dying on the inside once you reach thirty. Where that depressing idea of looking at life came from, we don’t want to know. And we’re not about to make you feel guilty because you’re still deciding on life insurance in your thirties and up.
Yes, life insurance rates tend to rise depending on the age of the applicant. And yes, there’s a bigger difference between thirty and thirty-nine than there is between twenty and twenty-nine (at least in the underwriting world).
But we often know more of what we want and what we need by the time we’re in our thirties: our careers have schooled us on personal and financial investments, families and mortgages are (on average) in the picture, and thoughts of the future are a bit more immediate.
Besides, there’s always term insurance; no one says you’re married to life insurance (unless they’re selling you whole or universal life, that is). A ten-year term life policy may be just up your alley!
How Do Tax Brackets Affect My Death Benefit?
On the topic of costs (oh, joy!), let’s take the long view on the hidden costs of life insurance. This is going to vary over time and by state, but let’s get comfortable with the overall idea so it doesn’t sneak up on us later, shall we?
When death benefits are issued, they are taxed on that year’s tax bracket--not the year the policy was first issued. That could mean that your $200,000 death benefit could be cut down by say, a 28% tax bracket. Okay, now your beneficiary receives $144,000.
While there’s no way of knowing what the given tax bracket might be should your policy ever be issued (if you have term) or exactly when it is issued (if you have whole), it’s not a bad rule of thumb to estimate a 30% tax bracket and decide if that means you want to insure a higher death benefit or look into additional financial investments to help provide for your loved ones.
And that’s something important to remember: life insurance is an investment.
Can I Pick A "Wrong" Beneficiary?
Here’s a quick tip: if it can be helped, don’t declare your estate as your beneficiary.
Those tax brackets we just mentioned? Well, when you apply your death benefit to your estate, your heirs now have a wealthier estate to manage. And a more expensive estate = a more taxable estate. Oftentimes your heirs will be saddled with more taxes, less death benefit, and the beginning of a headache. But be sure to talk with your personal agent about what possible scenarios would look given your unique circumstances.
Most people will be content leaving their primary beneficiary as their spouse, and may name their children as contingent beneficiaries. In fact, it's almost always a good idea to name a contingent beneficiary, and the reasoning is the same as the estate example above. Say you and your spouse both pass away in a car accident and you have no contingent beneficiaries declared. Your death benefit is now inherited by your estate--which again creates that over-taxed scenario that we're not the biggest fans of.
But there can be dozens of ways and reasons for your life insurance policy--like those illustrated in this article.
We want to make your policy shopping quick, comfortable, and painless. These are just a few of our insights on life insurance, but feel free to contact us today with any of your burning life insurance questions!
Until then--be happy, healthy, and insurance-savvy!