Should you get life insurance in your 20s? 5 reasons to consider it

When you have children or other dependents, the protection offered by life insurance can become a financial necessity. But that doesn't mean you have to put off buying a contract until you start a family. Purchasing coverage as a young adult can have a number of advantages regardless of whether you have dependents.

Should you get life insurance in your 20s, then? If you want to potentially lower your payment and protect family members from financial challenges, the answer may be yes.

Life insurance falls into two broad categories: term and permanent coverage. Both can help safeguard your loved ones when you die. However, there are key differences that are important to understand if you're planning to take out a policy.

Term life insurance is the more basic form of coverage. Its sole purpose is to provide a death benefit to your beneficiaries during the period when the policy is in place—whether it's 10 years or 30 years. It's a popular option among more budget-minded customers due to the fact that premiums are typically more affordable than permanent policies.

As its name implies, permanent life insurance covers you for as long as you pay the required premiums. In addition to paying your beneficiaries upon your death, permanent insurance may help you build cash value that can be tapped during your lifetime.¹ This added feature makes it a valuable planning tool for a wide variety of financial needs.

When you're still relatively young, it's easy to think of protection for your loved ones as something you'll get around to buying later. It may be a relatively low priority compared to other expenses.

In the long run, however, signing up for coverage earlier may help reduce your future bills and give you more financial freedom later in life. Here are five of the key benefits of life insurance for young adults:

If you already have children or other family members that you support financially, life insurance can help provide for them when you die, particularly if it's unexpected. Even if you don't have dependents, though, a policy can help your loved ones, giving them some means to cover your funeral expenses, which can be a significant financial burden. The median cost of a funeral with a burial was $7,848 in 2021, according to the National Funeral Directors Association.

Another example of how to use the death benefit from a life insurance contract to help those closest to you is putting it toward loans you may have taken out with a co-signer. This could relieve that person of the need to pay the outstanding balance out of pocket.

When you pay premiums on a permanent life insurance policy—a category that includes whole life and the more flexible universal life—a portion of that payment is credited as your cash value. As this balance grows, you can access the money by withdrawal, policy surrender or a loan (just keep in mind that any amounts you don't repay would reduce your death benefit).

Having that cash value to draw upon gives you more financial options when you're in times of need. Whether it's paying a tuition bill or making the down payment on your first home, life insurance can provide a backup source of cash you can turn to without taking on debt. You also can draw on that balance to help fund your retirement, helping to ensure you can have the post-career lifestyle you've envisioned.¹

Insurance companies make interest payments—and in some cases, pay dividends—to whole life and universal life policies, adding to the potential of your cash value to grow through your lifetime. Meanwhile, variable universal insurance, another type of permanent coverage, credits your account based on the performance of investment subaccounts, allowing for greater growth potential but also increased risk during a market downturn. Your cash balance builds on a tax-deferred basis, which increases your tax-adjusted rate of return.

Typically, the older you are when you apply, the more expensive life insurance becomes. Therefore, obtaining coverage in your 20s could help you get a more affordable rate for the same amount of coverage. With whole life insurance policies, the premium is guaranteed for life. By locking in your price when you are younger, you know what your payment will be in the future.

The onset of a medical condition at some point in the future could mean higher life insurance premiums or even the inability to qualify for coverage at all. Signing up when you're 20-something and in good health can help you ensure your future, older self will have coverage later on regardless of what happens. Once you purchase life insurance, your coverage is guaranteed for as long as the policy is active.

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When purchasing a life insurance policy, obtaining the right amount of coverage is critical. Common practice suggests that you should select a benefit equal to at least 10 times your annual salary. If you're buying life insurance with the anticipation that you'll likely have a family one day, that can be a useful yardstick.

If you already have a spouse, child or other dependent, you may want a more personalized approach. That means you'll need to estimate their long-term financial needs should you die. Start by adding up your family's approximate living expenses per year. This may include:

• Housing
• Food
• Transportation
• Clothing
• Daycare
• Activities and vacations
• Mortgage or other debt payments
• Contributions to a college fund

Next, tally the monthly amount that your loved ones are likely to be able to contribute from their own paychecks or investment accounts. You'll want life insurance that can cover any difference between their income and expenses for as long as that gap exists.

If you can't afford the desired amount of insurance, buying as large a policy as you can afford is still a positive step for your loved ones. Even if you only buy enough coverage to pay your final expenses, you could be relieving your family of a considerable financial burden.

Purchasing life insurance isn't just for adults who already have started raising a family. It also can be a powerful tool for those who plan to have a family and want to lock in coverage at a more favorable rate—or those looking for a solution to unforeseen financial needs later in life.

All that said, it's important to understand your options before buying insurance at a young age. It's also crucial to prioritize where your income is going. A Thrivent financial advisor can help analyze your complete financial picture and recommend the type of product and coverage amount that best suits your needs.