As you're getting started in adulthood, life insurance might not be the first thing on your mind. But there are some really good reasons to consider getting a life insurance policy while you're in your 20s, especially if you serve in the military. You may need more insurance than Servicemembers Group Life Insurance (SGLI) provides.
Let's explore the advantages of getting life insurance in your 20s.
The Benefits of Getting Life Insurance When You’re Young
Getting life insurance is one of the wisest financial decisions you can make, especially when you’re young and in good health. By securing a policy when you’re young, you can benefit from lower premium payments throughout your coverage — and it’s typically easier to obtain one.
If you’d like the opportunity to build cash value with each premium payment, there are certain whole life insurance policies that let you do that. The cash value has the potential to grow substantially over time, which will provide an additional financial benefit beyond the coverage itself.
What Life Insurance Does
Life insurance isn’t only an investment in your future; it’s also designed with your loved ones in mind. While many people designate their spouses as their beneficiaries, you may not be married yet. However, your beneficiaries could include your parents, siblings, or other adults in your life who would be responsible for managing your final affairs in case of your death.
Coverage Means Your Loved Ones Won’t Have to Pay Off Your Debts
If you die unexpectedly, you’ll probably leave behind unfinished business including your debts and other financial liabilities.
By having a comprehensive life insurance plan in place that’s large enough to cover your outstanding debts, you can help your loved ones deal with that financial burden during the already challenging time of losing you.
Don’t have any debts? Life insurance can still help your beneficiaries by giving them the means to cover your funeral expenses and possibly help reduce their other financial responsibilities as well.
It’s a Safety Net for End-of-Life Expenses
As a young person, death and estate planning may not seem relevant to your life now. However, it’s important to remember that anything can happen at any time, especially for servicemembers who may be putting their lives at risk every day. Also, accidents and illnesses happen, even if you’re not in a combat zone.
Whether your beneficiary is your spouse or parent, life insurance alleviates the burden they may face to pay off your medical bills and arrange your funeral. Even the simplest of memorials can be expensive for your loved ones if they don’t have your life insurance benefit to help cover the costs.
Tax Benefits
The death benefit from a life insurance policy is generally not considered taxable income by the U.S. government. These tax benefits can help your parents, siblings, or any other beneficiary you’ve chosen handle unexpected finances because they receive those benefits without any taxes being taken out. .
Types of Life Insurance
There are two main kinds of life insurance: term and whole life.
Term Life Insurance
Term life insurance policies last for a specified period of time or “term.” This could be 10, 20, or 30 years or another term outlined in your insurance policy contract. Once the term of your policy ends, your coverage also ends.
A term policy’s purpose is to to provide life insurance coverage for the predetermined period, such as the span of a home mortgage or college education expenses. If you die during the policy term, your beneficiary will receive your death benefit.
Sometimes, if your policy has a conversion option, you can convert it to a whole life policy before it expires. New terms and conditions usually apply.
Whole Life Insurance
Whole life is a permanent life insurance policy that lasts throughout your lifetime, provided you pay your premiums and don’t cancel the policy. The premiums for permanent life insurance policies are more expensive than term, because the policy will cover you for your lifetime and typically offer more benefits, such as cash value accrual, policy loans, and other financial benefits.
There are various types of permanent life insurance policies, but whole-life policies are the most conservative and are guaranteed for your full life.
The Best Life Insurance for Servicemembers in Their 20s
Regardless of what kind of policy you buy, life insurance is a valuable safety net that protects your loved ones if you pass away prematurely.
Finding the Best Policy for You
It’s advisable to consider having both types of insurance: term and whole life. While you’re in your working years earning money, you should plan on having enough insurance to take care of anyone who depends on your income well into the future.
You should also maintain a permanent policy that you can keep for your entire life. The best case scenario is that you live well into old age when your policy has earned a great deal of cash value to provide a higher death benefit to pass on to your loved ones after you die. However, even if you pass away sooner, your permanent policy will be there to help your loved ones cover your final expenses and debts.
Your Servicemembers Group Life Insurance (SGLI) through the military ends when you leave the military. That alone makes having your own supplemental coverage — ideally term and permanent coverage — necessary. Waiting until you’ve left the military, potentially with chronic conditions incurred in your time of service, is not the time you want to have to apply for coverage to replace SGLI. Sitting down now and listing what you need from a life insurance policy in both the short- and long-term will help you find the best option today.
Here are some questions to ask yourself:
How Much Coverage Do I Need to Protect My Family and Benefits?
Coverage needs vary from family to family based on many factors, such as current income, future educational expenses, living expenses, etc.
Determining the right amount of coverage is crucial for ensuring that your family and dependents are financially protected in the event of your death. Assessing your coverage needs, for now and for the long term, will help in selecting a policy that aligns with your financial responsibilities and goals.
Which Life Insurance Policy Has the Best Long-Term Benefits?
The type of life insurance policy with the best long-term benefit is permanent life insurance that builds cash value. Acquiring this kind of life insurance policy in your 20s means you’ll have more time (years) to accumulate more value.
Which Life Insurance Policy Is Less Expensive?
Because of its long-term benefits, permanent life insurance costs more than term life insurance. As a result, most young people buy whole-life policies with small death benefits that would only be enough to cover final expenses. However, combining a small whole life policy with a larger term policy can give you the amount of coverage you need to fully protect your family, while still easily fitting it into your monthly budget. So the answer to this question depends on your life situation.
Are There Any Additional Features or Riders Available?
Yes, depending on your selected policy, there may be riders you can add for additional coverage. Some available riders may include:
- Accidental death benefit rider
- Waiver of premium rider
- Critical illness rider
- Long-term care rider
- Spouse or family income benefit rider
Exploring additional features or riders is important for young servicemembers as it provides extra layers of protection tailored to their specific needs. Understanding and considering these options can enhance your policy’s value and offer peace of mind, knowing that you and your family are covered.
Learn More About Life Insurance with AAFMAA
If you’re a younger servicemember with questions about life insurance, AAFMAA can help. Our experienced Membership Coordinators will take the time to understand your unique needs, answer your questions, and guide you to the best possible coverage for your family. Call 877-398-2263 today to discuss your options.
This article was originally published April 11, 2022.