Young, determined and drowning in debtLife Events
How the largest demographic in the US can use life insurance to help get a better grip on their financial future
Today’s college graduate crosses the stage with a degree in one hand and 21 years of debt in the other. Millennials, now the single largest demographic in the US1, came of age in a time when jobs were tight and personal debt was skyrocketing. The latest information from the Filene Research Institute shows that two-thirds of millennials have at least one source of long-term debt—from student loans, home mortgages, car payments and more —and 30 percent have more than one2.
Millennials start at a deeper debt disadvantage than previous generations. The average bachelor's degree holder now needs 21 years to pay off his or her student loans, according to a 2013 study by the One Wisconsin Institute3.
That’s a long time – and a lot of interest – to pay for your education. Do you have a plan?
When you’re young, single and starting your career you may not know how some financial strategies have changed since your parents were planning for your future.
You need a solid plan to address long-term debt, both to:
- ensure it doesn’t become an overwhelming burden, and
- ensure you don’t leave it to your family if something should happen to you.
Many private student loans, auto loans and first-home mortgages are co-signed by parents, grandparents and spouses, and that debt does not necessarily expire when you do.
The life insurance industry has long used the adage, “if anyone relies on your income, you should consider life insurance.” That’s still very true. For millennials, though, comes a friendly addendum: “If you have debt, you should consider life insurance.”
Not your granddad’s life insurance
Many financial advisors will tell young adults with few financial responsibilities that an inexpensive term policy is all you need to relieve your family of any financial strain your unexpected passing may bring.
This is an outdated and short-sighted view of what life insurance can offer. Today’s life insurance offers many versatile options – they may be flexible, portable and designed to help insulate you (and your family) from future financial uncertainty at death, but equally important, during life.
Think about this: a young adult who has purchased a 10- or 20-year term policy may experience much higher premiums for the same policy if they outlive the initial term period (as they are statistically likely to do)4 and will have no cash benefit to show for their years of paying premiums.
Life insurance can help protect your future financial security
With permanent life insurance, you generally pay a higher initial premium than for term coverage – with good reason. The premium you pay on top of the cost of life insurance coverage and other policy expenses goes into a cash accumulation account, grows generally income tax-deferred5, and can be accessed generally income tax-free6 later in life while keeping your life insurance coverage intact. Down the road, you’ll be able to tap the cash value of the policy, generally income tax free7, and use it to help reduce your debt.
Financial planning is about creating future financial options for yourself. Preparing today – when you’re young and healthy – means you’ll be in a better position to weather the storms to come – because it’s not “if,” it’s “when.” And, if something unexpected happens to you, you won’t leave your family burdened with your debt.
1 US Census Bureau; https://www.census.gov/newsroom/press-releases/2015/cb15-113.html
2 2012 Report Gen Y Personal Finances: A Crisis of Confidence of the Filene Research Instituteand Capability;
3 One Wisconsin Institute study, 2013; http://onewisconsinnow.org/press/new-national-research-shows-trillion-dollar-student-loan-debt-crisis-a-clear-and-present-danger-for-families-and-american-economy/
4 2011 Actuarial Life Table, Social Security Administration; https://www.ssa.gov/oact/STATS/table4c6.html
5 For informational purposes only. In general, partial withdrawals from a permanent life insurance policy in excess of the policy’s basis are taxable, and limited circumstances exist where death proceeds will be
taxable. Neither Farmers New World Life Insurance Company, its employees nor its Agents provide legal or tax advice. Always consult your own attorney, accountant or tax adviser as to the legal, financial or tax consequences and advice on any particular transaction.
6 Distributions from a life insurance policy in the character of partial surrenders (withdrawals) up to basis or policy loans will generally be income tax free, provided the policy does not violate Modified Endowment Contract (MEC) guidelines and the policy is not terminated during the lifetime of the insured. MEC guidelines are rules in the Internal Revenue Code which specify maximum premiums that can be paid without triggering adverse tax consequences for withdrawals. A policy termination during
the life of the insured can cause the owner a single taxable event for any gains in the policy that were borrowed or withdrawn on or before the termination date.
7 Policy loans and withdrawals will reduce cash surrender value and death benefit. Policy loans are subject to interest charges. If your policy is a modified endowment contract, loans and withdrawals may be subject to taxes and penalties.
Farmers New World Life Insurance Company, 3003 77th Ave. SE, Mercer Island, WA 98040.
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