The optimal age for purchasing life insurance is technically
right after birth. Life insurance is age-banded, which means that as each year
passes, a policy becomes more expensive. There are arguments for and against a
parent or relative purchasing life insurance for a newborn. Here's a look at
the options.
A whole life insurance policy can be prepaid via lump sum
for an infant or minor. When the minor child turns 18, policy ownership can be
transferred to the insured, at which point the policy can be funded further, or
cashed in if it holds any equity.
Life insurance cash values grow tax-deferred. Premium contributions to whole life policies purchased at early ages can accumulate considerable value over long-term time horizons, as the cost of insurance is fixed for the entire term of the policy. Cash values can be used as a down payment for a first home purchase. If held long enough, accumulations may supplement retirement income. However, the primary function of personal life insurance revolves around two major categories: income and debt.
Life
Insurance and Debt
A college graduate entering the workforce may, in the
absence of savings, obtain a credit card to fund relocation or housing costs.
The acquisition of unsecured debt immediately places a burden on the debtor's
estate, as card balances require payment upon the death of the holder. Ideally,
the 22- to 23-year-old graduate purchases a life insurance policy to cover the
debt assumed. However, most individuals under age 25 are more concerned with
paying current bills than acquiring additional ones.
While the optimal age to purchase life insurance is under
35, millennials are the least likely to purchase a policy. In 2015, individuals
between 18 and 35 overestimated the cost of a policy by 213%. Among the 57% of
U.S. citizens who own life insurance, more than half of those policyholders are
45 or older. With marital rates decreasing 21% from 1960 to 2010, life policy
purchases are being delayed despite the inherent advantages of buying at a
younger age.
Life
Insurance and Income
Fewer people are tying the knot, and the number of
dual-income households has more than doubled from 1960 through 2012. More than
60% of U.S. households contained two wage earners in 2012, a 35% increase from
1960. With life insurance existing to protect households from the death of a
breadwinner, direct written life premium has nevertheless remained flat between
2012 and 2014.
Monthly life premiums take a backseat to retirement savings
among U.S. residents 25 or older. Furthermore, 40% of Americans don’t own life
insurance. Among that population, more than half of them say that payments for
conveniences such as cellphones, cable and internet service take precedence
over prospective life insurance premiums.
The Cost of
Waiting
Forgoing life insurance purchases at a young age can be
costly over the long term. The average cost of a 30-year level term policy with
a $100,000 face amount is about $156 per year for a healthy 30-year-old male.
By contrast, the annual premium for a 40-year-old male is about $216. The
overall cost of delaying purchase for 10 years sits at $1,800 over the life of
the policy.
Additionally, the cost of waiting to purchase life insurance
can have a greater impact on an attempt to purchase a policy. Medical conditions
are more likely to develop as an individual grows older. If a serious medical
condition arises, a policy can be rated by the life underwriter, which could
lead to higher premium payments or the possibility that the application for
coverage can be declined outright.