Young professionals starting in the early phases of their career are experiencing a very exciting and unique time in their lives. They are learning, growing, and building an experience bank to better themselves and develop skills in order to advance in their career and find success. This stage of life may also come with enormous changes to personal and family life, including the start of building a family and making the transition from apartment hopping to settling down in a home. In this fast-paced and dynamic part of a young person’s life, many don’t think about financial and risk management. Life insurance is a powerful tool with benefits to be reaped with early implementation.
As a quick overview, there are two types of life insurance both with unique features and uses- term and permanent. Term insurance is plain and simple life insurance- if the insured passes away, the policy pays the death benefit to the beneficiaries income tax-free. It is meant to last for a specified number of years and provides the highest death benefit at the lowest cost or premium. On the other hand, permanent insurance is designed to provide coverage for the entire life of the insured. It may also allow for the accumulation of cash value, which can serve as a tax-favored savings vehicle.
Due to higher internal costs, permanent insurance typically has higher premiums for the same death benefits when compared to term insurance. These higher costs are attributed to the fact that if the policy is held for entirety of the insureds life, it is expected that a death benefit will be paid. This is in comparison to term insurance, where the policy is set to expire after a certain amount of time with a smaller chance of a death benefit being paid out. Both have their place in a prudent and comprehensive life insurance portfolio.
Many younger people believe they have no need for life insurance, having no family or liabilities that need to be taken care of in their absence. However, purchasing permanent insurance at a young age allows a client to lock in a low premium while their cost of insurance is low, compared to purchasing the policy at an older age when premiums will be higher. These policies also serve as a tax-favored savings tool if properly funded, a place to efficiently allocate excess liquidity over and above normal savings, which can be borrowed against or drawn upon in an emergency. Some policies may offer long-term care benefits, which can be critical in case of an accident or deteriorating health.
One of our mottos here at Nabell Winslow Investments is “Never apologize to a widow”. When a person has a spouse, children, or any other dependent family members they support, it is important to ensure they have enough coverage in terms of death benefits for these dependents to continue living comfortably in the case of an untimely death. This is where term insurance finds its best use. People can amass hundreds of thousands or millions of dollars of coverage, depending on the need, with minimal premium payments. This coverage is meant to be in force during the middle years of a person’s life, when they may be supporting more dependents and are insuring against the loss of their current and future income in the case of their death.
It is important to start building a portfolio of life insurance in your younger years for risk management alongside your investment and retirement portfolio. With these savings and risk management tools, young professionals can begin to build a foundation for future success and stability.
By: Josh Rosenberg, Investment Advisor Representative
Nabell Winslow Investments and Wealth Management
Securities and advisory services offered through Cetera Advisors LLC, member FINRA, SIPC. Cetera is under separate ownership from any other named entity. The information in this article is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult your legal or tax professional for specific information regarding your individual situation.