August 27, 2014

Is there any difference between adult and teen life insurance?

There are a number of differences between insurance policies for adults and those for teenagers. Younger people without families have difference insurance needs, and their lifestyles and habits are different on average from older people.

It is prudent for a teenager to buy life insurance since the premiums for the term of the insurance policy can be fixed at a much lower rate. This means that the insured person can benefit from much cheaper insurance. Insurance companies package insurance products for specific age groups to cater for the different risk profiles and needs of different categories of people in those age groups. Even if teenagers do not purchase age-group tailored insurance, there is an advantage to insuring earlier with more standard policies, which is that the premiums paid will be lower and can be locked in for the entire term.

That said, most teenagers do not have the earning power nor the ability to sustain a consistent income that many older adults have. This means that adult life insurance policies with expensive or even average premium costs can be prohibitive for teenagers. Closure of many term life insurance policies due to defaulting on payments or for other reasons can result in the loss of the premiums paid, as the majority of policies cannot be ‘cashed out’.

Although there are a few term life insurance policies marketed specifically to teens, most often a quote is generated for teenagers as it is for other adults. Insurance companies use a process called underwriting to determine the level of risk associated with the individual insurance buyer. This level of risk is based upon such things as national statistical averages for mortality and disease, statistics about rates of injury and accident, the age of the individual, their health, and other facts about their demographic and person.

All life insurance in Australia is now term life insurance. Term life insurance policies are available to provide cover in the event of lost income (called income protection), in the event of serious temporary debilitating injury or illness (trauma term life insurance), and to provide more permanent protection in the case of permanent and total disability due to disease or injury. Young people who have a good level of general fitness have different risk levels for things like chronic diseases and heart attack: generally speaking they are much lower than for older individuals. This means that a different combination of income protection, trauma and other life insurance sub-types will be suitable for teenagers than for older adults. Nevertheless, some thought should be given to the future and some notice taken of some rather morbid statistics in establishing even shorter term life insurance.

Initially, it may be advisable to focus on income protection and trauma insurance to cover for such things as sporting and industrial accidents. However, other contingencies should be considered as the individual moves into their 30s and 40s, when such things as chronic diseases are more prevalent.

Policies for shorter terms tend to be cheaper. This means that for teenagers in good health but with limited incomes and perhaps some income instability, a shorter term life insurance plan is probably a better option. When all of these factors are taken into account, it becomes clear that insurance policy costs are governed by health as much as by age. Age is taken to be an indicator of health status. However, provable good health has a two-fold effect: it diminishes the likelihood that one will ever need to use an insurance policy, and any policy that one does buy will be cheaper. Avoiding smoking, unhealthy foods, and lack of exercise come highly recommended for all ages.

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