Young Adults and Life Insurance

 

Why Young adults should prioritize life insurance and why Term is the better option.

 

This guest post is courtesy of Hannah Holmes, Regent Law 3L:

Many young adults avoid thinking about end-of-life planning because it feels distant or uncomfortable. However, funeral costs average $7,000 to 12,000, and most young adults do not have enough savings to cover those expenses. Life insurance is an easy way to ensure that family members are not left with a financial burden during an already difficult time.

Although life insurance matters at every age, it is especially important for young adults who are still developing financial stability. A policy can cover funeral costs, outstanding bills, or other obligations so that loved ones are protected.

The two most common types of life insurance are term life and whole life, and they differ significantly. Term life insurance provides affordable coverage for a set period, usually 10, 20, or 30 years, and has no cash value. It is designed to cover individuals during the years when financial responsibilities are highest.

Whole life insurance, on the other hand, lasts a lifetime and includes a cash value component. While this feature sounds appealing, it is often misunderstood. While cash value technically grows within a whole life policy, it does so very slowly, sometimes taking more than a decade to break even. Additionally, borrowing against cash value reduces the death benefit unless repaid. A crucial point often overlooked is this: upon the insured’s death, beneficiaries receive only the policy’s death benefit—not the cash value—unless the policy has been specifically structured to include it. This nuance is frequently omitted in sales presentations, leading consumers to believe they are leaving both cash value and a death benefit to their loved ones.

For these reasons, term life insurance is usually the better option for young adults. It offers substantial coverage at a fraction of the cost, and the money saved by choosing term can be invested in retirement accounts or mutual funds—often yielding better long-term growth than the cash value in a whole life policy.

Life insurance is a crucial part of responsible planning, and term life provides young adults with the most practical and cost-effective protection.