Question

Bart is a college student. Since his plan is to get a job immediately after graduation, he determines that he will need about $250,000 in life insurance to provide for his future wife and children (Bart is not married yet and does not have any children). Bart has obtained a quote over the internet that would require him to pay $200 annually in life insurance premiums. As a college student, this is a significant expense for Bart, and he would likely have to borrow money to pay for the insurance premiums. Advise Bart on the timing of his life insurance purchase

Answer 1

Bart should probably wait to purchase life insurance until he is married and or has children are currently has no dependents which would make it difficult for him to specify a beneficiary

When You’re a college student so life insurance is probably the last thing on your mind. You’re mostly worried about paying for college, graduating, and dealing with student loans—not about your own death!But you’re a prime target for life insurance companies, who know that they need to catch your attention while you’re young and in good health, so you can qualify for insurance and pay the premiums for many years to come.

So let’s look at the pros and cons of buying life insurance while you’re a student, or as soon as you graduate-

Who Needs Life Insurance—and Who Doesn’t

The main reason for buying life insurance is to protect someone who is financially dependent on you. If you’re married, and especially if you have young children, life insurance is a must. The payoff to your beneficiary is part of your long-term commitment to pay a mortgage or provide a college education in your absence.

But if no one is depending on you, there is really no need to buy life insurance now.

You’ll hear arguments that it’s best to buy life insurance while you’re young, healthy and “insurable.” But I’d counter that if you ever become “uninsurable” for health reasons, it’s unlikely that you’ll be starting a family and creating dependents!

And you’ll hear arguments that life insurance is a form of forced savings. That’s true—but out of every premium payment a portion of your dollars will go toward “mortality charges” —the cost of the death benefit. If you don’t need the death benefit, you would be better off in the long run by putting the entire amount in an Individual Retirement Account (IRA) to grow tax-deferred for your retirement.

And you’ll hear that the buildup of cash inside your life insurance policy can be borrowed out tax-free later in life (although the borrowing does reduce the death benefit).

I’m not against having life insurance. In fact, used appropriately it’s a good “bet.” You know, we are all going to die at some point! Deciding when to buy life insurance is simply a matter of understanding when to place that bet. That means it’s important that you know just a few basics about life insurance.