Why I purchased life insurance at 23.
Everyone’s situation is different.
Mine began recently with a bunch of firsts: my first job; my first apartment; my first life insurance policy. I am now a 23-year-old single individual, with no dependents, with some disposable income—and a life insurance policy owner.
How did this happen?
The conversation began at work. I asked Bill, a colleague, about his retirement future, and how he intends to plan for it. He rattled off the usual, in no certain order: a 401(k) plan, Roth IRA account, personally-held stocks and bonds, a money market account. And, life insurance.
I was surprised by that last one. Life insurance was a part of his financial portfolio? My understanding was that we received life insurance through our employer; so, basically, we were covered. And, I didn’t view life insurance as a part of any financial strategy.
Bill went on to say that life insurance has always been a part of his family’s financial blueprint, and was purchased primarily for the death benefit. The whole life insurance policy that his father purchased early in his own life actually helped pay for Bill's college education. And, now, Bill said that the whole life insurance policy he currently owns is now helping to pay off his student loan.
Bill’s Living Benefits.
I have always equated life insurance with death. Once a death claim is paid to a beneficiary, that person can use the proceeds as needed. Well, Bill quickly dispelled that notion for me. Here is what he said about some of the living benefits of whole life insurance:
“These are benefits available to you while you are still alive. Cash value accumulated in a permanent life insurance policy can help you pay for life’s anticipated, and perhaps unanticipated, events, such as buying your first home, education expenses, or a wedding. Once the need for death benefit protection has decreased, you can access the cash value in a the whole life policy via policy loans.” It’s true that accessing the cash value through policy loans and partial surrenders will reduce the cash value and death benefit, and loans require interest payments. Loans have to be structured properly with your Agent to avoid tax consequences.”
Bill took advantage of the living benefits of his whole life insurance policy to help pay off his student loan. He purchased his policy at 23, the same age I am currently. Now 34, he’s engaged to be married and plans to again borrow some of his policy’s cash value to offset costs of the wedding. He’s going to continue to fund his whole life policy so that when he retires, he can use some of the cash value to supplement his retirement income. Bill worked with his Agent to manage accessing the cash value carefully, because accessing the cash value carries a risk of contributing to the lapse of the policy.
As we got deeper into the conversation, the idea of buying a whole life insurance policy made more sense to me. Still, there were cost considerations. I, too, am paying off a student loan, and close to erasing my credit card debt. So, there was some lingering doubt.
The benefits of beginning early.
Bill understood and appreciated my point about cost—he had similar concerns before he bought his policy. What really sealed the deal for me, however, is when Bill recounted what his father said when he questioned becoming a policyholder in his twenties.
Bill said: “Basically, the younger you are, the lower the price will be to insure you. Also, you're in good health now, so your premiums will be lower than if you decided to get life insurance at my age, when your health status may change and put you at risk for being unable to obtain life insurance at an affordable cost or even at all. And, if you lock in your premium now, it will never increase—guaranteed.*
“So, with a little belt-tightening now, by becoming a life insurance policyholder, you will have an important and secure financial-building block for your future.”
This has certainly been an eye-opening experience for me. What are the next steps? Start with a needs assessment by a professional life insurance Agent.
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*This is a fictional scenario to illustrate some of the benefits of permanent life insurance.
The guarantees of a whole life policy are based on the claims-paying ability of the issuer.
In Oregon, the New York Life Whole Life policy form number is ICC12213-50.