Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
The most important thing for a college student to understand is that life insurance is issued on the basis of age and health. Normally young people can demand very low premiums for life insurance. The advantage of starting a life insurance policy when young is that there are fewer health concerns.
The second thing that a college student should understand is that life insurance is all about statistics. If they have had a class in statistics understanding life insurance should be easy. There is a very large pool of people who would suffer significant loss if they died. They pool their risk so that those who experience this unfortunate event can be compensated by the very small contribution from the vast majority that survive. Inherent in this idea is that the probability of death increases with every passing year. This makes the amount each member of the pool pays into the pool increase each year because more of the participants will die in a given year.
The third thing a college student needs to know is that life insurance companies are corporations that are based on the idea of legal reserves. Even though they know that a certain percentage will die of a particular age group they must maintain reserves in the unlikely event that the death rate is higher for some unknown reason such as war. These legal reserve companies are “admitted” to do business by the various state insurance commissioners. Their reserves are monitored closely to make sure that the companies can keep their promises.
The fourth thing a college student needs to know is that even within a specific age there is a wide variation of health. I had classmates who died in their first year of college. One classmate died of a medical condition. This variation is like a “bell-shaped” curve. Most of the people are in the middle of the curve and are considered to be “standard” risks, however some are better than average and some are worse than average. Life insurance companies hire underwriters to evaluate the deviations and assign premiums that reflect how different the individual is from the standard risk. The reason that this is done is to maintain the risk pool and make sure it can keep its promises.
The fifth thing a college student needs to know is that since life insurance is all about statistics the companies can develop a wide variety of life insurance plans. Some may appear superior while in fact their costs are comparable. There is merely a different design to the plan. For example a student could buy a one year term life policy for $500,000 for very little in premium. For a multiple of the premium he could buy a $500,000 whole life policy. Neither is good, nor bad. They are just different. The whole life policy will remain in force at the same death benefit for the lifetime of the insured without changing the annual premium. The one year term policy will either cancel or renew at a higher premium at the end of the policy year. If a person knew when they were going to die, they could choose a policy that would maximize benefits. However few of us have that information.
The sixth thing a college student should know is that life insurance will probably form the foundation of their financial plan in the future. For this reason it is wise to select a life insurance agent who can service you for the foreseeable future. That doesn’t mean to select a peer but rather someone with whom you can mature. The advice of the life insurance agent could be very important as you mature and your needs change. At some point you will probably own a great deal more life insurance. Family, debts and retirement all play a role in determining how much life insurance to carry.
The final thing that a college student needs to know is that companies work hard to develop a reputation but the relationship with an agent trumps everything. If you have a good agent, you will find them to be very valuable in the future.
Just as a simple direct answer, a college student should know that life insurance is the most important insurance product once you find a loved one that depends on you. Too many widows and widowers are financially devastated at a loss of a spouse or loved one. Life insurance is the most affordable at a young age. Buy as much as you can afford as early as possible. I have never seen a widow turn down a beneficiary claim check because it was too much money.
That is an excellent question! I like simple answers, so here's the cliff notes version - cheaper to buy the younger and healthier that you are; one of the best financial protections there is; and if there is anyone that you love and wish to care for if you were to pass, it's a must. Contact an independent agent when you have some free time, and we'll walk you through in more detail. Thanks for asking, and good luck with school!
President, Lane Independent Agency, Southern California
Great that you are asking this question now and not 40 years from now. The cost of life insurance will never be less than it is when you are young and healthy. Life insurance can accumulate value during your entire lifetime and become a stash of cash for you to draw against in emergencies, or when you want to buy a house or retire, if you buy cash value life insurance, usually called Permanent Life Insurance. I personally recommend EIUL, which stands for Equity Indexed Universal Life, because it accumulates value, usually the largest amount of value, will not lost value with the market, but will gain value with the market. You can borrow against it and keep the money tax free, although that will reduce the death benefit if not repaid. It is like a bank account that can make sooooo much more gain than your bank or cd. It is a great way to get an instant legacy, since if you deposit a hundred now, you can have 1/2 million in death benefits, versus putting a hundred in the bank and having an estate there of only a hundred. What a great way to go! GARY LANE, garylane@cox.net
In addition to the other great answers above, I would add that a college student should know that they can usually get life insurance based on their future earnings. Just because they are in school and not making an income now, does not usually exclude them from getting a policy.
Insurance Adviser - Broker, SC Insurance Services, Oahu, Hawaii
That is a good question! Typically college students are under age 30 and therefore are in the best class as far as insurance premiums go. When a person is young and healthy is the very best time to implement a Whole Life, Cash Value insurance policy. So really the first thing a college student needs to know about life insurance is that while Term insurance is really cheap, it has no cash value to the policy holder ever, unless it has a accelerated benefit rider. In that case it will pay a percentage of the death benefit to the policy holder in the case of critical or chronic illness where the client cannot perform at least 2 of the essential daily living tasks. Otherwise the only benefit to anyone other than the insurance provider is in the case where the death benefit is paid to the beneficiary.
Also regarding Term insurance, as the name implies, it will end at the completion of the term, ie: 10 years; 20 years; 30 years. And then it will be much more expensive to buy another term.
Whole Life is more costly in premium than Term, but still much less when you are young and healthy. There are a variety of kinds of Whole Life policies, but with "Straight Whole Life" premiums are guaranteed not to increase over the life of the policy, so in actuality it is more affordable than Term over the long haul. And the premiums you pay into Whole Life build cash value that you can use without ever paying taxes on! Contact me for more information.
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The second thing that a college student should understand is that life insurance is all about statistics. If they have had a class in statistics understanding life insurance should be easy. There is a very large pool of people who would suffer significant loss if they died. They pool their risk so that those who experience this unfortunate event can be compensated by the very small contribution from the vast majority that survive. Inherent in this idea is that the probability of death increases with every passing year. This makes the amount each member of the pool pays into the pool increase each year because more of the participants will die in a given year.
The third thing a college student needs to know is that life insurance companies are corporations that are based on the idea of legal reserves. Even though they know that a certain percentage will die of a particular age group they must maintain reserves in the unlikely event that the death rate is higher for some unknown reason such as war. These legal reserve companies are “admitted” to do business by the various state insurance commissioners. Their reserves are monitored closely to make sure that the companies can keep their promises.
The fourth thing a college student needs to know is that even within a specific age there is a wide variation of health. I had classmates who died in their first year of college. One classmate died of a medical condition. This variation is like a “bell-shaped” curve. Most of the people are in the middle of the curve and are considered to be “standard” risks, however some are better than average and some are worse than average. Life insurance companies hire underwriters to evaluate the deviations and assign premiums that reflect how different the individual is from the standard risk. The reason that this is done is to maintain the risk pool and make sure it can keep its promises.
The fifth thing a college student needs to know is that since life insurance is all about statistics the companies can develop a wide variety of life insurance plans. Some may appear superior while in fact their costs are comparable. There is merely a different design to the plan. For example a student could buy a one year term life policy for $500,000 for very little in premium. For a multiple of the premium he could buy a $500,000 whole life policy. Neither is good, nor bad. They are just different. The whole life policy will remain in force at the same death benefit for the lifetime of the insured without changing the annual premium. The one year term policy will either cancel or renew at a higher premium at the end of the policy year. If a person knew when they were going to die, they could choose a policy that would maximize benefits. However few of us have that information.
The sixth thing a college student should know is that life insurance will probably form the foundation of their financial plan in the future. For this reason it is wise to select a life insurance agent who can service you for the foreseeable future. That doesn’t mean to select a peer but rather someone with whom you can mature. The advice of the life insurance agent could be very important as you mature and your needs change. At some point you will probably own a great deal more life insurance. Family, debts and retirement all play a role in determining how much life insurance to carry.
The final thing that a college student needs to know is that companies work hard to develop a reputation but the relationship with an agent trumps everything. If you have a good agent, you will find them to be very valuable in the future.
Also regarding Term insurance, as the name implies, it will end at the completion of the term, ie: 10 years; 20 years; 30 years. And then it will be much more expensive to buy another term.
Whole Life is more costly in premium than Term, but still much less when you are young and healthy. There are a variety of kinds of Whole Life policies, but with "Straight Whole Life" premiums are guaranteed not to increase over the life of the policy, so in actuality it is more affordable than Term over the long haul. And the premiums you pay into Whole Life build cash value that you can use without ever paying taxes on! Contact me for more information.