How Much More Will Life Insurance Cost Me if I Wait?

There are lots of things we’re more than happy to put off: Finally getting rid of the pacifier. Potty training. Explaining the birds and the bees. 

But there’s one thing that really will bite us if we put it off too long: applying for life insurance.

Lots of people don’t have life insurance even though they know they need it. Only three in five adults have life insurance, yet 90% of respondents think a family’s primary wage earner needs a policy, according to the 2018 Insurance Barometer Study conducted by the nonprofit Life Happens and LIMRA, a financial services company. 

Why do so many people put it off?

“It ties directly into the fact that millennials are waiting a lot longer now to get married, have kids and purchase homes,” says Luis Rosa, a Certified Financial Planner and founder of Build a Better Financial Future in Henderson, Nevada, says.

Although Rosa says it’s often OK to wait until your late 20s or early 30s to purchase life insurance, particularly if no one depends on you financially, waiting until closer to 40 could have a lasting impact on your financial security. (What exactly is life insurance, anyway?) 

Here are six reasons why.

1. Life Insurance Premiums Increase With Age 

This may be the biggest reason that you may regret waiting.

Life insurance gets more expensive the older you are, because your chances of illness and death increase as you age. In general, according to Rosa, rates rise by around 8% per year. 

According to one analysis by ValuePenguin, if you’re between 25 and 30, your life insurance rates will only rise about 2% per year. But if you’re between 60 and 65, they’ll rise a whopping 93% per year. 

That certainly can lead to regrets: In fact, 42% of Baby Boomers in the survey said they believe the best time to buy life insurance is while a person’s still young and healthy. 

Due to policies being so much more affordable when you’re young and healthy, 20- and 30-somethings will pay significantly less in total life insurance premiums over the course of their selected policy term, usually either 20 or 30 years. 

The above chart assumes no premium increases and should be used for reference only, as policy premiums are subject to an individual's health. Rates calculated based on both genders. 

2. The Older You Are, the More Your Health Might Be Impacted 

Certain common medical conditions, like obesity, high cholesterol and high blood pressure, can impact your life insurance rates. And your chances of developing high cholesterol and high blood pressure go up with age. Obesity rates peak in middle age, too, according to the Centers for Disease Control and Prevention (CDC). 

When you apply for a life insurance policy, the insurer will take an in-depth look at your current health and medical history. So if you have serious medical issues, you could be denied coverage or be given a more expensive rate. In other words, getting older doesn’t just make insurance more expensive because rates go up as you age—your risk factors for other issues also increase. 

It’s worth noting that if you are denied traditional life insurance, you have other plan options, though they’ll likely have a lower coverage limit. 

3. Your Employer-Sponsored Plan Probably Won’t Roll Over 

Many employers offer life insurance coverage, but Rosa says it’s wise to take out an individual policy, as employer-sponsored plans don’t typically roll over—meaning if you no longer work there, you often lose your policy. 

According to the study above, if you’re in your 30s and a nonsmoker, you can get insurance for an average of just $26 a month, so getting your own policy after losing your employer-sponsored plan may not be too big of a deal. But once you reach your 40s, the rates start to increase a bit more drastically. The average cost for a 40-year-old is just $12 more than a 30 year old per month; however, the average monthly premium for a 45 year old jumps to $34 more a month.

“I always tell people to use the employer plan as some sort of supplement to a policy that they go and buy on their own,” Rosa says. “Because if you buy it on your own, then you're guaranteed to lock into that coverage and premium whether or not you switch jobs.”

4. Your Debts Could Be a Burden to Your Cosigners

Life insurance can help protect any cosigners on your loans, if you die before your debt is paid off. The study found that the average yearly cost of life insurance for a 25-year-old nonsmoker is $308—which is not a huge price to pay to spare your cosigners down the line. 

Here’s why it matters: Although some debt, like federal student loan debt, is discharged at death, not all is. Rosa says that private student loan debt, for example, could be passed on to your cosigner. “You might leave the cosigner with a lot of debt in the event of your death,” Rosa says. “So delaying [life insurance] could create a problem for someone else.”

Keep in mind you’ll need to  select your cosigner as your beneficiary when you set up your life insurance policy if that’s the purpose of the policy. You can always change your beneficiary in the future. For example, you might initially select your mother if she’s the cosigner on your loan, but once your loan is paid off, you could switch the beneficiary to be your child.

5. Your Financial Situation Could Change in the Future

Life insurance companies don’t always take your credit into consideration as part of the underwriting process, but some do. If you have an adverse event on your credit report, such as a pattern of missing payments or a bankruptcy, this could affect your premiums or even if an offer can be made at all. 

If you get life insurance while your finances are strong, that can help protect you against higher rates in the future, if you were to be hit with an unforeseen financial event.

6. Your Job or Driving Record Could Change

Not only do life insurance policies take your occupation into consideration (with higher premiums for riskier, more hazardous jobs) but they could also take a look at your driving record. If you’re a good driver and work a safe job, one benefit of applying for life insurance now is that your career and driving record could change in the future. 

When It’s OK to Wait

Rosa says there are two primary scenarios in which he doesn’t typically advise clients to purchase life insurance. 

First, some people don’t need it yet. For example, if a 21-year-old recent college graduate isn’t married, doesn’t have kids, doesn’t own a home and is still repaying debt, Rosa said it’s probably fine for that person to just stick with their employer’s basic group term life insurance policy. Once they get closer to their mid-20s, however, he’ll typically encourage them to start considering an individual policy.

The second instance is at the other end of the age spectrum. If Rosa encounters a client who is 60 or 65 and already has income streams, assets, a house that’s paid off, a pension, Social Security and a substantial IRA, he often advises that life insurance isn’t worthwhile. “Unless they wanted to use it to leave a legacy, it doesn't make any sense for them to shell out the money for the premiums at that point,” he says. 

"More often than not, I do recommend life insurance especially when it’s somebody young,” said Rosa. “The premiums are so cheap that it can’t hurt to have the insurance."

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