San Diego Union-Tribune (Sunday)
SMART TACTICS FOR MILLENNIALS FLOCKING TO BUY LIFE INSURANCE
Life insurance applications for Americans have jumped in 2020 as the COVID pandemic has made us more aware of our own mortality.
No one has been more interested in their own life insurance gaps than the under-45 crowd. Application activity has grown almost twice as fast this year for Americans 44 and younger as for those 45-59, according to research through September from MIB Group, a data-sharing service for insurance companies.
Younger buyers are often firsttime applicants, digging into the details to understand how life insurance works. If you're looking for a policy, here's how to ease your way through the application process and get the most out of your new coverage.
Plan for tomorrow, not today
Many young Americans are still near the beginning of their financial journeys. Jobs, homes, cities and relationships will likely change over the next decade, which means needs and dependencies may change too.
“The question of who needs life insurance is very personal, but an easy way to know if you need life insurance is to consider if someone would suffer financially if you were to pass away,” said Faisa Stafford, president and CEO of industry group Life Happens. “If the answer is yes, then you should consider life insurance.”
She recommends focusing on two main issues: replacing your income and repaying your debts if you die. That means thinking ahead to cover your growing financial commitments as your life changes.
For example, a new homeowner can skip mortgage protection insurance, which pays off your loan if you die, and choose a term life policy instead, suggests Roslyn Lash, a financial educator in North Carolina and author of “The 7 Fruits of Budgeting.” Your mortgage debt will shrink over time, but your life insurance benefit stays the same — so if you die, some of the money could be used for other priorities, such as sending a child to college.
Skip medical exam while you can
Life insurance applications are notoriously frustrating. You might expect to fill out forms, explain medications and take a life insurance medical exam just to find out if you're approved.
While this process is still out there, simpler options are now available. “The use of e-signature, no blood or urine tests, and online applications all have made life insurance more accessible to more people,” Stafford said.
In a growing practice called “accelerated underwriting,” many insurers now rely on your prescription drug use, data about you from MIB Group and electronic health records to speed the process, according to the Society of Actuaries.
Accelerated applications can cut approval times down from weeks to hours, according to the National Association of Insurance Commissioners, with no medical exam required. Young buyers are often the most likely to be approved, and there's almost no downside. Most insurers will simply have you take a medical exam if you aren't approved without one.
Don’t assume it is expensive
Buying now rather than later can help you save money on life insurance, which makes sense: The older you get, the more risk you pose to your life insurance company. The result is that a policy for a 25-year-old is likely to be much less expensive than the same coverage for a 45-year-old.
Many millennials may not realize the value of buying life insurance while they're young and healthy. Research by the life insurance trade group LIMRA shows that half of millennials overestimate the cost of coverage. Only 52 percent own life insurance, even though 80 percent recognize they need it, according to LIMRA.
But the pandemic is providing new motivation. In October, nearly 1 in 3 millennials said they feel an increased need for life insurance due to COVID-19, according to consumer research from LIMRA.
To get started, all you have to figure out is how much you need and for how long you need it. Think about the people who depend on you. How much money would they need to pay off the house? How long would they need to finish school or find a job?
Stafford suggested starting with a general guide to determine your coverage need: 10 times your annual salary. “But since finances are complicated, working with a financial professional can help you figure out how much coverage you need for your own personal situation,” she said.