When you don't need life insurance

Not everyone needs life insurance. Don't be scared into buying it too early.

You can't buy life insurance when you're dead. It's not that insurers are deadists, but they do tend to discriminate against insuring people who are 100% certain to claim.

You also can't buy life insurance when you've been diagnosed with a terminal illness. These insurers are smart!

This is why it's best to get on with buying it sooner if your early death would result in a loss of income or increased costs for your family.

Shall we take it one step further?

One reader, time2go, recently commented on one of my articles and asked whether we should bring forward the purchase of life insurance further. He wrote:

"What are your thoughts as to taking out life insurance when you are younger, even if dependants are several years away, as your premium would be lower and you are less likely to have developed a serious illness (i.e. that is when premiums sky rocket)?"

In other words, is it worth buying life insurance before you have a spouse, children or other people dependant on you? The reader's theory is that you could save money by locking in the cheaper premiums offered to younger people, even if that means you have to pay the premiums for longer.

My first reaction to this idea was 'Do we really need to give life insurance salespeople yet another excuse to sell even more insurance?' I mean, they already come up with enough reasons to sell to as many people as possible to earn their monthly commissions for the length of the policy.

However, the question did lead to a few comments from other readers, so I decided it was worth taking the time to look into it and settle the debate. I ran a few tests.

There's not much in it either way

I found that there are no significant savings to be made if you start earlier. The monthly premiums are lower, but the extra length neutralises that. There is also no sudden leap in costs from the ages of e.g. 29 to 30, or 44 to 45; insurers gradually increase prices as your age ticks up. As I said at the beginning, life insurers aren't stupid.

This means, in pure maths terms, there isn't a great deal in it whatever you choose.

However, there are too many uncertainties

If it costs roughly the same to start earlier in return for longer cover, it may be tempting to do so. However, you'd have to be pretty darn sure that you'll have dependants in the near future and I don't think anyone can be that certain.

Also, the trend for life insurance prices, after factoring in inflation, will likely tend downwards over time due to improving medical care keeping us alive. (That's not to say it won't rise in some years due to the insurers' other costs though.)

In addition, there are some problems with buying early. What if you get dependants later than you expected? Who will you name as a beneficiary, since you have no dependants to begin with? What if, when the time comes, a joint policy would have been more suitable and you've been paying into the wrong sort of plan? What if a future employer offers you enough cover as a benefit and you've been wasting your money?

Life insurance is about protecting your dependants against financial loss on the possibility of your death. Let's not take out life insurance against the possibility that you get dependants who will need protecting against financial loss. That sounds way too complicated.

On the whole, then, to answer the reader's question, I'd say that the majority of people should save their money. We have enough bills as it is without paying for the possibility of a possibility!

More: Life insurance cheapest in seven years | Soapbox: keep it simple

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