Life insurance for young adults

If you’re over the age of 18 and you have dependents, such as a partner or children who rely on you financially, then it could be a good time to get life insurance.

As mentioned, waiting to take out a policy could mean paying higher premiums, or that you’re unable to secure the amount of cover you need, in the future.

Many young people take out life insurance at certain life events, like:

• Getting married
• Buying a house
• Starting a family

These are crucial moments that could prompt the need for financial protection, whether you’re in your 20s, 30s or 40s.

There’s no definitive age which is best to arrange life insurance, so this decision will be unique to you.

It’s possible to take out cover up to the age of 85 but you should be aware that the longer you put off securing cover, the more you’re likely to pay.

While you’re in young adulthood you may not have a steady partner or children but it’s important to consider your funeral costs if the worst happened.

The average cost of dying has risen significantly over the past 18 years and now resides at £9,658.

If the value of your estate (any money, possessions and property you own) is not sufficient, your loved ones will need to pay for this cost out of their own pocket.

Therefore, even at a young age it can be beneficial to have some form of life insurance in place.

The younger you arrange life insurance, the cheaper it is. So, the sooner you arrange cover the better.

It's ideal to take out life insurance in young adulthood as you can lock-in low premiums for the foreseeable future.

As discussed, invoking a special events option allows you to adjust your cover at a later stage to suit any change in circumstances.

Putting off arranging cover until you're older will mean you're subject to increased premiums that come with age.

Therefore, arranging cover as a young adult can be a sensible decision.

When determining how much life insurance you need it’s often recommended to calculate the value of what you’d like to protect.

When arranging life cover as a young adult you should consider the different aspects of your life you currently need to help protect and those which may come into play in the future.

For example, if you don’t have a mortgage or family, you may only need to consider any debts you currently have. However, if you wish to buy a property and start a family in the near future you may want to factor in these future costs.

The sum assured you choose should be capable of covering all aspects.

For example: Credit card debt (or any other debts you have) + Car finance + Mortgage balance (or rental agreement) + Future family living costs = Required sum assured

Taking out enough cover to protect all potential future avenues allows you to lock-in lower premiums.

When you pass away your life insurance proceeds form part of your estate (your estate is made up of any money, possessions and property you own).

If your estate exceeds £325,000, your loved ones will have to pay 40% inheritance tax (IHT) on the excess.

Whilst the £325,000 threshold may not seem relevant for many young adults, it can be easy to exceed this amount.

For example, if you have a policy of £200,000 coupled with a 1-bedroom flat worth £150,000 your estate already exceeds this by £25,000 before any savings are factored in.

Writing your life insurance in trust can detach the value of your policy from your estate, meaning that it’ll not be taken into account with regards to the £325,000 threshold.

This provides the following benefits:

• Reduce / avoid inheritance tax (charged at 40% on anything over £325,000)
• Bypass the probate process (for a faster pay out)
• Specify how you wish the proceeds to be distributed (upon your passing the funds will be paid to a nominated trustee who will make sure they are distributed as per your wishes)

At Reassured we're able to offer a dedicated free trust service on the majority of the policies we arrange, at no cost.