You love your insurance company as much as the next person, and paying premiums to it is right up there with paying your taxes. I’m frequently asked by clients when is the right time to buy life insurance; they don’t want to pay premiums longer than is absolutely necessary. I hear this from twentysomethings, thirtysomethings, 40, 50, even folks in their 70s and 80s. My answer is always the same: The best time to purchase life insurance is before you die.
I may be oversimplifying to some extent since some life insurance policies are meant to be acquired early in life, as they provide living benefits, savings, tax benefits and all sorts of other perks. At its core, life insurance is structured to pay a lump sum of moola when you shuffle off your mortal coil. So if we’re just looking for that result — a death benefit when you die — when do you buy?
Let’s walk through some of the different factors, and then we can come to the answer together. The first and most important item on your checklist to be aware of is when you buy life insurance, since the premium you pay will in great part be determined by a snapshot of you the day you purchase the policy. Think of it like a Polaroid picture of you — it shows you then and only then. It doesn’t change, get older or get sicker — or healthier, for that matter. The picture stays the same. Meaning when you sign on the dotted line, you lock in your current age, health, gender, employment type, hobbies, the works.
For example…
If you’re a 45-year-old man in generally good health, lacking the proclivity for extreme sports and work in an office, not a dynamite-manufacturing facility, then the life insurance company will decide on your premium based on those factors, for better or worse. If you smoke — let’s not get into more detail about what it is you’re smoking — have a spare tire or two you’re lugging around with you and spend your weekends cliff jumping, well, then, that is what the insurer will offer you a policy based on. The premium you will lock in for these two potential versions of you will differ greatly.
Understand that once you accept the premium and the policy is in effect, even if you gain or lose weight, change occupations or add or subtract extracurricular activities, the premium you are paying is not going to change, generally speaking. Ergo, the ideal time to purchase a life insurance policy is when you’re as young as you can be, healthy and present the least likelihood of dying. Makes sense, right? Assuming you are looking for the lowest premium possible, this could be the best opportunity you’re going to have when you apply.
Most of the time, as the mere mortals we are, apologies to the superhumans reading, as we age we may become less than the optimum versions of ourselves. We may develop a health condition, become injured or take up a less than savory habit. And we definitely will get chronologically older. So under all circumstances covered thus far, buy the policy when you are as young and healthy as you can.
There’s always a caveat
And now comes the caveat. If indeed you purchase your policy when you are young, healthy and in the best shape of your life, this means you will be paying premiums for the longest period of time, assuming you live a long life. So how does this balance out with the lower premium you are paying? What makes more financial sense — paying less for a longer period of time or paying more for a shorter period of time? Are you starting to get the idea on why answering the question of when to buy can be so tricky?
If you aren’t scratching your head yet, let me add to your quandary. There are some types of life insurance policies, referred to as term life policies, that provide a death benefit for a finite period of time. So if you were to purchase a 30-year policy, meaning it will pay a death benefit for the entire 30-year period from when you make your initial purchase, when you are 30 years old, healthy and strong, that policy will expire when you are 60 years old. Guess how much more likely it is for a sixtysomething to die prematurely than a thirtysomething. Yes, as you surmised, much more likely, and then your policy expires? Not a good-sounding deal.
There are other options
As luck would have it, your good buddies at the insurance companies have a solution for you. You can purchase a policy that lasts until you are age 100, or even older, if you like. Just keep coughing up those bucks, and they will keep that policy going. You may have heard of policies such as this referred to as either whole life policies or universal life policies. Each company has its own policy, its own guidelines and provisions, so it is crucial to read the policy and ask all of your questions before you buy.
So did you get your question answered, or just come up with more questions? Hopefully, a bit of both, and provided you are clear on what it is you want, and that there are options out there for you to choose from, go out there and shop between many insurance companies, or find a great insurance broker to do the searching for you. Ask questions and be clear on what it is you are looking for, and chances are, you can get the life insurance policy you’ve been hoping for.
