Anyone recent college graduate may wonder why someone would suggest that they need a life insurance at the beginning of their career. Like most young people, you may think you are invincible, and the last thought on your mind is not living a long, full and fulfilling life. However, purchasing life insurance as a new graduate should be considered as a long term financial investment that will be less expensive the sooner it is started.

Life insurance is an assurance policy

Well-read college graduates with a good vocabulary will appreciate the difference between insurance and assurance. As an example, when you buy an insurance policy, like car insurance, you’re purchasing a policy to protect you against the expense associated with an unfortunate accident that will require you to file a claim. In reality, you may or may not need to make a claim against your car insurance policy. It will depend on whether or not you’re involved in an accident, or have your car stolen, etc.

A life insurance policy could be more accurately referred to as an assurance policy. Unfortunately, as the saying goes, “the only certainty in life is death” – meaning you are assured at some point to die. Keep in mind that none of this is meant to be, or sound, morbid. It’s just that we must all face our mortality, and prepare for it. Part of that preparation is making financial provisions for those you leave behind and, quite simply, the sooner you take out a life insurance policy, the more secure those provisions will be.

Start young and pay less for life insurance

The number one reason college graduates should take out life insurance sooner, rather than later, is because the monthly premium will be less expensive.  From the perspective of a life insurance provider, there is increased risk associated with age.  The older you are, the closer you may be to the time your life insurance policy will become payable. Subsequently, the older you are when you purchase your life insurance, the higher the monthly policy premium will be in order to provide an adequate level of coverage. Purchasing a life insurance policy when you are younger means you will probably pay a lower premium.

Before discussing this with a life insurance investment professional, let’s look at a simple example for $500,000 worth of life insurance coverage. Based on something called an actuarial table, if you wanted to buy a life insurance policy over a 30-year term at age 25, the insurance company might charge you $50 a month, or a total of $18,000 ($50 x 12 months x 30 years). –While this may seem like a large amount of money, in the event of your death, the insurance company would pay out $500,000!
If you didn’t buy that same life insurance policy until you were 35-years old, the insurance company would require higher monthly premium, about $70 a month, or over $25,000 in total. The reason for this is simple. Because you’re older, the chance that you will pass away before the policy is fully paid is higher. Because the risk to the insurance company is higher, your provider will need compensation for it.

Why does a college graduate need life insurance?

There are four main types of life insurance policies you can buy:

• Term Life
• Whole Life
• Universal Life
• Variable Universal Life

All of these life insurance policies have a death benefit, and some of them offer you the potential to access dividends on the insured sum during your lifetime. Although a life insurance policy may not necessarily benefit you as the owner of the life insurance policy, it does make provisions to financially protect your family.

Of course, many college graduates don’t have dependants (yet). However, there are other reasons for purchasing life insurance. For example, if you have a mortgage, a life insurance policy can insure that your mortgage is fully paid off in the event of your death. This could make it easier for someone you love  to inherit the property. By taking out adequate life insurance against your mortgage, you can be confident that your wishes would be carried out.

Taking out life insurance as a college graduate should be viewed as part of your long-term financial planning. The sooner you purchase a life insurance plan, the more affordable your monthly premium will be. This can save you plenty of money over the term of your policy. The best approach is typically to start  with a modest life insurance policy and, as your salary rises as you advance in your career, you can upgrade your life insurance policy, thereby giving your dependants an enhanced financial package on which to rely..