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New Grads: Do You Need Life Insurance?
Finishing your studies is a time for excitement as you head out into the big wide world to begin your career. Surely that means a life insurance policy isn't something worth thinking about just yet, right? After all, isn't it for older people? Well, young friend, that's where you’re very wrong. New grad life insurance could just be the smart move as you enter the stage as an adult. Here's why.
Don’t leave personal debts behind
Hopefully you won't leave university owing too much money, other than your student debt. Plus, if the worst was to happen, federal student loans are typically discharged after the required proof of death is submitted. Not that we want to start things off on the subject of death, of course. But it's nice to know that your family won't be loaded with extra bills if you were to pass.
The average US student leaves university with $29k of debt, which is both federal and personal. Other debts would need repaying, and that could mean family members like your mom and dad suddenly find themselves required to cover the debt you leave behind. With a life insurance policy, however, nobody needs to shoulder the burden of debt. The death benefit associated with your policy would cover money owed, allowing your family members to, at the very least, be free of needing to cover your debts.
A different type of savings account
Ok, so now that the morbid bit is out of the way, let's get onto the good stuff. There are two primary types of life insurance, term and permanent. A term policy gives you coverage for a set amount of time and pays out a death benefit to your beneficiary, but it does little else. Plus, if you’d like to renew, you'll be required to pay premiums at your renewal age rather than the age when you took out the policy.
With a permanent life insurance policy, however, the game changes. You can accumulate wealth while you're still alive, thanks to the cash-value element. This means your policy essentially becomes an investment account where you can save for the future.
It works by paying into two pots: the death benefit and cash value. Over time, both of these grow, with the cash value accessible later in life. Think of it as a form of retirement income– and if you're paying in from your 20s, you can expect to build up a significant amount and acquire a nice little nest egg. It's one of the safest ways to grow wealth and protect your future as you get older. Permanent life insurance sees an average yearly return of 6-8%.
Not only can you build wealth while you're still alive with a permanent policy, but the money earned is also completely tax-free. When you withdraw the cash value accrued, you can do so in the form of a loan to yourself, which doesn’t require any tax to pay–it's impossible to pay yourself tax.
The death benefit pays for the loan when you do pass away, and the remaining amount is left to your beneficiary. Using permanent life insurance is a smart way to save without accumulating a hefty tax bill when the time comes to withdraw your money.
You'll probably also use something like a 401(k) or form of a savings account when you start work. And a permanent policy alongside a 401(k) is a great way to protect your family while building tax-free wealth over the long term.
One of the best things about new grad life insurance is the premiums. The younger and healthier you are, the cheaper your monthly life insurance payments. If you decide to get a permanent policy, you'll lock the premium in for life and will pay the same amount in your 20s as you would in your older years.
When you look at life insurance through this lens, it becomes a precious investment. Over the long term, you stand to save thousands by taking out a policy when you're a new grad as opposed to doing it in your 30s or 40s when you may decide to start a family.
Other than the ability to build wealth, the premiums on a permanent policy are one of the beneficiary drivers when compared to term coverage. Yes, a term policy is cheaper in the short term. But it doesn't provide any bonuses outside of the death benefit, and we've already mentioned the rising premiums if you wish to renew when term coverage expires.
When you look at a permanent policy from every angle-the death benefit, one premium, cash accumulation, and tax-free savings–it more than proves its value as a savvy way to invest in your future while protecting the people you love.
In conclusion: new grad life insurance
Sure, a gap year visiting Europe or the Serenghetti looks appealing after you graduate, and there's plenty to be excited about as you enter real adulthood. But no doubt, getting a permanent life insurance policy can start you off on the right foot as you look to achieve your money goals. It will be an assuring constant in your life as you progress your career and gain more experience, all the while the policy is accumulating wealth in the background to help you build for the future as soon as you've finished university. Now, that's what we call smart financial planning.