I’m a financial adviser, and I can tell you the only 20-somethings who get enough life insurance through work are the ones who don’t need it anyway

Jeff Rose. Courtesy Jeff Rose

I know $US750,000 sounds like a lot of life insurance, especially when you’re only in your 20s. And truth be told, it is too much for most. And maybe it’s even way too much for the average young person.

Generally speaking, if you’re young and single, and you don’t have dependents or big debt obligations, you can get by with a minimal amount of life insurance – or maybe even none at all. That certainly describes a lot of people in their 20s. But it didn’t quite fit my circumstances, which was why I chose to purchase a healthy amount of life insurance early in life.

Now, I need to confess: There were a couple of reasons for buying so much coverage that didn’t necessarily have anything to do with an actual need. I graduated from college with a finance degree at age 24. That kind of major creates an obvious awareness of all things financial, And maybe they’re the kinds of things that someone with a degree in political science or engineering might not consider.

As a graduate with a finance major, my first job was interning at a brokerage office. The internship turned into a full-time job, and I was already working as a junior advisor coming right out of the starting gate. Score another point in favour of making provisions for the long term.

But while the finance degree and my stint at a brokerage firm created the awareness, they didn’t exactly establish a tangible need for life insurance.

‘Real life’ enters the picture in my 20s

After graduating college and landing my first job, life began to move quickly. I was part of the Army National Guard, and got called up to be deployed to Iraq 2 ½ years later. I was also in a steady relationship with my girlfriend, Mandy. It was so serious, in fact, that she’s now my wife!

At that point it was a maths equation: serious relationship + overseas military deployment = I need life insurance!

As is the case with so many 20-somethings, I had no life insurance at all. There was no policy through my employer, nor through my then-inactive membership in The Guard.

But I got a bit of a break when I was called up to active duty. At that point, I was eligible for Servicemembers Group Life Insurance (SGLI). I took out the largest policy I could, which was $US400,000.

Of course, that was only to cover my immediate need – having life insurance coverage while I was deployed on active duty. But once my deployment ended, that coverage continued for just nine more months. After that, I was back to having no life insurance coverage.

Marriage was the cue to get serious about life insurance, even though I was only in my 20s

Shortly after my deployment to Iraq ended, Mandy and I were married. Apart from making a financial provision for her in the event of my death, I had brought significant debts into the marriage. Like a lot of 20-somethings, that included a student loan and credit card debt.

I made about $US60,000 my first year back on my job at the financial planning firm where I had worked before my deployment. Mandy had a job in employee benefits sales, earning about $US35,000 per year. We bought our first home, complete with a $US109,000 mortgage.

That’s when I decided to take out my first life insurance policy. It was a 30-year term policy with a $US250,000 death benefit. Based on my marital status and debt obligations, that seemed like an adequate amount of coverage at the time.

But there was another advantage I had on the life insurance front. Working at a financial planning firm, I was licensed to sell life insurance policies, enabling me to buy my own policy. Plus, I was young and in good health, and was approved “preferred plus” by the insurance company.

As a couple, we were committed to improving our finances very early in the game. Other than our mortgage and car loans, we paid off all our other debt. We also committed to maxing out our Roth IRAs, while saving as much as possible in our employer-sponsored 401(k) plans.

The plot thickens with the arrival of our first child

The $US250,000 policy was sufficient for our financial circumstances at the time. But there’s probably no single event that creates the need for a large amount of life insurance like having a child.

When our first child was born, I added a second policy. This one was for $US500,000, and also for a 30-year term. That gave me a combined total of $US750,000 in life insurance coverage between the two policies.

Now, rather than carrying two separate policies, I could also have chosen to combine the two under a single policy for $US750,000. I’m not sure why I didn’t, but at the time it seemed to make sense to keep two policies.

There’s an important point with that arrangement that needs to be mentioned. It’s generally cheaper, premium-wise, to have a single very large life insurance policy, rather than two separate ones. Life insurance premiums are priced based on a per thousand basis, with the per thousand rate being lower on larger policy amounts.

That’s exactly what I did in my early 30s, as our family expanded with more children. If you’re going to add additional life insurance policies, be sure to get quotes on a single policy that combines both policy amounts. It’s a way to save at least some money on your premiums. I didn’t do that the first time around, but you should at least give it a try.

My own experience isn’t the same strategy I recommend to all 20-somethings

Because of my own position in life – being married, having substantial debt, and eventually a child – getting life insurance in my 20s was the right strategy. And I’d recommend a similar course for anyone with a situation like mine.

But that advice won’t hold true for everyone.The most basic purpose of life insurance is to provide for someone else who is dependent on your income for survival. If you don’t have one or more people who fit that description, you don’t need life insurance. Simply having life insurance for the sake of having a policy islargely a waste of money.

There is however one exception to that rule, and that has to do with debt. If you owe a family member or friend money, you should have life insurance sufficient to satisfy the debt upon your death. After all, you won’t be around to pay off the loan.

A related situation is where you have one or more loans that have been co-signed by another party. Typical examples will include student loans and auto loans, which were co-signed by your parents to enable you to be approved.

The purpose of adding a co-signer is so a second party will be available to make good on the debt should the primary borrower be unable to do so. Death is certainly one of the events that would trigger co-signer responsibility. Upon your death, co-signed loans will become full obligations of your co-signer(s). You should maintain a sufficient amount of life insurance to pay off any co-signed loans upon your death.

Don’t assume you do or don’t need life insurance in your 20s

If you’re in your 20s, don’t assume you do or don’t need life insurance. Just as at any stage of life, the need for coverage depends on your personal circumstances, and who may be dependent on your income after your death.

If there’s no one, and no one who may become saddled with an outstanding debt obligation as a result of your death, there’s no need to have life insurance.

But if you do have one or more people who are dependent on your income, or other financial obligations that may become the responsibility of someone else upon your death, you’ll need to have a policy.

If so, don’t wait! Life insurance coverage will never be less expensive than it will be in your 20s. You’re young and probably in good health, and that’s the absolute best time to buy life insurance.

Policygenius can help you compare life insurance policies to find the right coverage for you, at the right price »

Jeff Rose is an entrepreneur disguised as a certified financial planner, author, and blogger. Jeff is an Iraqi combat veteran having served in the Army National Guard for nine years, including a 17-month deployment to Iraq in 2005.

He’s best known for his award-winning blog GoodFinancialCents.com and book, “Soldier of Finance: Take Charge of Your Money and Invest in Your Future.” He’s also the founder of Wealth Hacker Labs, a movement to teach accelerated wealth-building strategies to future generations.