Proactively taking up a policy now could save you thousands later.
You’re young, healthy and just getting into the swing of your career. Life insurance may not have yet crossed your mind. If it has, you’ve probably thought: Do I really need it now?
But your mid-20s are a smart time to start looking at life insurance. In a nutshell, the younger and healthier you are, the lower it costs to insure you. By locking in a low premium today, you could potentially save thousands of dollars in the future.
And those savings can come in handy when your financial obligations — mortgages, marriage, children and business expenses — start to stack up.
Savings aside, life insurance policies offer peace of mind and protection for your loved ones when you’re no longer able to provide for them. Even if you don’t have a family now, you’ll get a sense of security and a financial building block for the future.
Life insurance companies for 25-year-olds
Which is the cheapest life insurance provider for 25-year-olds?
Let’s look at a $250,000 policy. Our research suggests that the cheapest life insurance provider for a 25-year-old nonsmoking man might be Protective Life at $12.90 a month. As with all types of life insurance, rates for a smoker climb higher. Banner Life and William Penn tend to be inexpensive options for smokers at $36.25 a month.
For a 25-year-old nonsmoking woman, Banner Life and William Penn are affordable options with typical coverage at $11.52 a month, according to our research. If you smoke, they’re still among the best options, with rates increasing to $30.31 per month.
Monthly costs of a 20-year, $500,000 term life policy for a 25-year-old in perfect health
|Provider||Male nonsmoker||Female nonsmoker||Male smoker||Female smoker||Apply now|
|Banner Life (LGA)||$19.69||$16.68||$65.70||$54.39|
|William Penn (LGA in New York)||$19.69||$16.68||$65.70||$54.39|
|AIG Life Ins (American General)||$19.81||$16.78||$66.09||$54.84|
|US Life (AIG in New York)||$19.81||$16.78||$66.09||$54.84|
|John Hancock USA||$23.47||$20.02||$74.22||$55.42|
|Principal Life Insurance||$21.00||$17.68||$86.63||$68.25|
|Lincoln Financial Group||$25.81||$21.88||$78.31||$59.06|
|United of Omaha||$21.22||$17.28||$92.09||$75.47|
What is my risk of dying in the next five years?
With time on your side, a typical, healthy 25-year-old is expected to live a long life. For a man, the risk of dying in the next five years is 0.70%, and the figure for women is lower at 0.29%.
To give you an idea of the average life expectancy in the US, a man who reaches age 65 today can expect to live until age 84.3. A woman turning 65 can expect to live until 86.6. Keep in mind that these are just averages — about a quarter of all 65-year-olds will live past age 90.
When you’re looking at life insurance policies, you’ll notice that age significantly affects your rate. It’s far less risky for a provider to cover you at 25 than it is much later in life.
Odds of passing away for a 25-year-old
|Within the next…||Male||Female|
Life expectancy rates are merely calculations based on averages of mortality among specific population, gender and age groups. They do not predict the specific life expectancy of any one person - including you. If you're concerned about your overall health and risks, talk to your doctor or health professional.
What is the typical cost of life insurance for 25-year-olds?
The cost of life insurance is highly personalized, but two big factors that come into play are age and health. For most people, your 20s are the best time to shop around for a policy: It’s easy to qualify for low preferred rates.
The average cost of a $500,000, 20-year term policy for a nonsmoking man in perfect health is around $22.09 a month. Over 20 years, the price totals $5,302.63, with an expected value of $17,900.22. For a nonsmoking woman in perfect health, the same amount of coverage would be around $18.64 a month, coming to a total of $4,472.40 with an expected value of $9,918.60.
What is expected value and how is it determined?The expected value (EV) of a life insurance policy is the anticipated value based on the odds that you’ll die and your death benefit will be paid out. You can find the expected value by multiplying the probability of you dying by the payout of the policy. If the expected value is higher than the total cost of the policy over the term length, then it may be considered a good investment. However, if the expected value is less than the total amount you’ll pay into the policy throughout the term, then you may want to look at other providers or alternatives to life insurance.
Let’s look at an example. Say you’re a 50-year-old nonsmoker who’s thinking about taking out a 20-year term life policy for $500,000 at $79.88 a month. As a man, you have a 20.97% chance of dying within the next 20 years, so you multiply that by $500,000 to get an expected value of $104,859.38. Since the total cost of your policy over 20 years adds up to $19,171.89 — less than the expected value — then your life insurance policy may be considered a good investment for the future.
What is the best life insurance policy for 25-year-olds?
Term life insurance is the cheapest type of life insurance overall, and life insurance providers should offer particularly low premiums to a 25-year-old. As such, it’s a popular choice for those in their mid-20s.
This type of life insurance policy provides coverage for a fixed period, usually 10, 20 or 30 years. If you die during that time, your life insurance provider pays out your policy’s death benefit to your beneficiary. However, the odds of you surviving your policy are high, which means the chance of your life insurance provider actually paying out your policy is low. In simple terms, it’s easy money for them — but a term life policy will protect your loved ones in case of a tragedy.
Most 25-year-olds can access a solid term policy for a low cost — for example, $500,000 in coverage for $22.09 a month. With term life policies, your premium doesn’t change, meaning you could be covered for a low cost throughout your working life.
If you prefer a policy that builds cash value, consider permanent life insurance, such as whole life. It typically costs two to four times more than term life insurance, but is still relatively affordable for a 25-year-old. A whole life policy is the most basic form of lifelong protection, and it never expires, as long as you make your payments.
Like term life, your whole life premium stays the same, but a portion of that premium is invested to give your policy a cash value. Once you build up enough value, you can take out loans against your policy to pay for things like a down payment on a house or a wedding. When you die, your beneficiaries receive a death benefit and an added cash value benefit.
As a 25-year-old, the difference between term and whole life insurance boils down to cost and whether you’d like access to benefits while you’re still alive.
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How do I calculate my life insurance needs?
To find your sweet spot, assess your financial responsibilities now and in the near future. Be honest about your needs, considering:
- Student loans. Did your parents or guardians cosign your student loans? If you die, that debt is typically transferred to your cosigner. A life insurance policy can help to pay for outstanding student loans and reduce the burden on your family.
- Marriage. As romantic as a wedding can sound, the reality of marriage comes with financial obligations that include rent or a mortgage, car payments or the wedding itself. Should you die, your life insurance coverage kicks in to protect your spouse, providing the income needed to maintain their lifestyle.
- Children. Customers say that help is hard to come by.
- Spotty support. In the US, the average age of first-time mothers is 26.6 years old. A child is a huge financial responsibility, and a life insurance policy can help cover the costs of raising a child if one parent dies. When you’re calculating your coverage, consider the additional expenses of a college education.
- Business ownership. Do you have a business, or are you hoping to start one? If so, a life insurance policy can offer the business — and its employees — security if something happens to you.
If you tick a bunch of the boxes above, you may want to look at higher coverage. At age 25, the difference between $250,000 and $500,000 or even $1 million in coverage is just a few dollars a month.
Let’s consider a 25-year-old nonsmoking man. Among the cheapest providers for a $250,000 policy are Banner Life and William Penn, which tend to charge $12.90 a month. If he wants to boost his coverage to $500,000, those same providers could charge $19.69 a month, a price difference of just $6.79. And to lift coverage to $1 million, it’s just $34.62 a month.
While your priorities as a 25-year-old might be establishing your career, paying rent and traveling, it’s worth looking at life insurance. When you’re young, fit and healthy, you can qualify for low preferred rates — and for most types of policies, those rates are locked in.
Proactivity pays off in other ways: It not only offers you a financial building block for the future, but can also provide peace of mind for your family, if and when you have one.
Though it can be cheap, life insurance is still an expense. If you decide to explore life insurance when you’re 25, shop around for the best policy with our comprehensive guide to life insurance.