(ARA) – If you were born between 1979 and 1994, you may have heard yourself described as part of “Generation Y.” Characteristics that define your generation include a tendency to be independent, opinionated and well informed – good qualities to be sure.
A 2010 study by Prudential, “Reaching Gen Y – easier than you think,” suggests that one area where you might benefit from more knowledge is in the area of life insurance. Those younger than 40 often give little thought to life insurance products early on, as they are more inclined to wait until they reach specific life stages.
What you may not know, is that the best time to buy any type of life insurance is when you are young and healthy, since the cost increases as you age. Life insurance premiums are also based on your health at the time of application, so waiting until mid-life maladies kick in may not make good financial sense.
“Starting research early for any major life purchase is key, especially life insurance,” says Joan Cleveland, senior vice president of Business Development for Prudential’s Individual Life Insurance business. “And when analyzing products, speaking with a qualified financial professional is a great way to end up with a smart and informed decision.”
Selecting the right product and coverage
According to the study, millennials are known to do a lot of comparison shopping online – financial services are no exception. Figuring out what products and services fit your needs is always the first step to purchasing life insurance. Before you get started, a basic understanding of the differences between types of life insurance is helpful:
Term life insurance: Like its name implies, term life insurance provides coverage for a specified “term” or period of time. It is usually less expensive than “permanent” insurance, especially in the early years of the policy. It typically does not offer potential for cash value accumulation. Rather, it typically provides a death benefit for a limited amount of time.
Advantages:
* Term insurance generally provides more death benefit for the same dollar than permanent insurance.
* It is a good choice if you want or need to maximize the amount of coverage you can purchase for a lower premium outlay.
* It is also appropriate to cover needs that exist for a limited period of time, such as college tuition or a mortgage.
Disadvantages:
* At the end of the specified period, your death benefit either expires or the premium increases dramatically.
* If you want to keep coverage without paying the higher premiums, you’ll likely have to purchase a new policy at your current age and health status, which will result in higher costs.
Permanent life insurance: Permanent life insurance is designed to provide coverage for your entire life. Premiums are typically due for the life of the policy. In addition to providing a death benefit, permanent policies are usually designed to accumulate cash value.
Advantages:
* As long as premiums are paid when due and other contractual conditions are met, permanent life insurance remains in effect over the course of your life, even if your health declines.
* Since age and medical condition are two of the major factors used in underwriting life insurance, purchasing permanent life insurance when you are younger and healthy will provide you with lower premiums.
* Buying permanent insurance now ensures you have coverage later, even if a future medical condition makes you ineligible to buy life insurance.
* Cash value that may accumulate in the policy can be accessed later, usually on a tax-favored basis, through withdrawals and/or loans to fund various needs.
Disadvantages:
* Because you have coverage for life, the premiums are higher compared to the initial premium for term insurance.
* Loans and withdrawals will reduce policy cash values and the death benefit and may have tax consequences.
Enjoying the best of both worlds
“In many cases, having a combination of term and permanent coverage is the right choice and the best way to help meet your financial protection needs,” says Cleveland. “But, ultimately, you should educate yourself and then make a list of questions or concerns you have so you come to the table prepared to learn how life insurance can help secure your financial future.”
All guarantees are based on the claims paying ability of the issuer. Policies may contain exclusions, limitations, reductions of benefits and terms for keeping them in force. A financial professional can provide you with costs and complete details.
