Should You Buy Life Insurance With Student Loan Debt?

Even with a slew of options to pay for college, many students graduate with some form of debt. In fact, the average amount of loan debt per student is $39,351, with a monthly payment of $393. Students graduating in 2021 hold an average of $30,600.

There’s no sign of the average debt load slowing down for future graduates, either. Whether you’re 21, 23, 25, 27, or older, graduating in 2022 or beyond, expect the average debt to increase.

When you begin your adult life, you have to take on a lot of responsibilities, like budgeting and choosing the right bank accounts. Another thing you should consider is life insurance.

Do You Need Life Insurance In Your 20s?

While you may not think you need life insurance in your 20s, it’s the best time to get it. The younger you buy life insurance, the cheaper it is. You’re usually at your most healthy and have the longest life expectancy, putting you in a much lower risk class than older generations.

Buying life insurance is cheaper at 20, than 21, 22, 23, and so on. In the 2021 LIMRA Insurance Barometer Study, 36% of millennials (born before 1998) say they need life insurance. This generation is second only to the one after it, Generation Z, with 43% saying they need it.

But, if you’re a 21- or 26-year-old college student, you might not even have an income. Or maybe you just landed your first job and you’re making less than $50,000 per year.

Why would you need life insurance as a 25- or 29-year-old making $50k or less? According to the study, people in this household income bracket are the ones who need coverage the most. Forty-five percent of respondents in this income bracket said they need life insurance compared to 29% of those making under $100k.

If you plan to get married or have kids, the need for life insurance is much greater. Replacing your income, paying for childcare as a single parent, and paying off a mortgage or student loans are just a few of the things your partner can do with life insurance proceeds.

Should I Buy Life Insurance At Age 25 If I Have Student Loans?

The type of student loans you have can impact your decision about whether you should buy life insurance at 22, 24, 26, or any other age in your 20s.

Many are under the assumption that if they’re single, their debts die with them. Though this may be true in some instances, it’s not always the case with student loans.

While federal student loans are usually forgiven in the event the student dies, parents are still required to pay for PLUS loans. The only way the lender will forgive those loans is if the parents die as well.

With private student loans, forgiveness is rarely granted. Lenders have the option, but don’t expect it to be exercised to help your parents if you die in debt.

If someone – a parent, aunt or uncle, grandparent, spouse, or friend – co-signs on the loan, then they’re going to be stuck with the rest of the debt if you unexpectedly pass away.

Should You Pay Off Student Loans Or Buy Life Insurance?

Your budget may only allow you one choice: pay off your student loans or buy life insurance. While it may be tempting to be done with your student loan debt by 29 or sooner, it may not be in your best interest.

Each year, you can deduct up to $2,500 in student loan interest on your taxes, even if you don’t itemize your return. There is no tax write-off for life insurance payments. Depending on your tax situation, it may be more beneficial to keep paying your student loan debt and buy life insurance with some of the savings.

Life Insurance For College Ages 20 - 29

Time and health are on your side when you buy life insurance in your 20s. Though you have a higher life expectancy, no one is promised tomorrow, and your time can come at any moment.

Overwhelmingly, most people buy life insurance to pay for burial or final expenses. Paying off debts and replacing lost wages or income are also high on the list, as well as leaving an inheritance.

These reasons are a mix of temporary and permanent needs for life insurance. Your personal needs can help you decide what type of life insurance to buy.

Temporary needs, like replacing income, paying for childcare or college expenses, are best suited for term life insurance. It’s less expensive than permanent life insurance, but rates are only locked in for a set number of years, usually 10 - 40 years.

There are many options to buy term life insurance, and tech companies are jumping on board to sell digital term life insurance. It’s faster, easier, and most in their 20s will qualify without a medical exam. Here are a few options to choose from:

• DayForward
• Everyday Life
• Ethos
• Fabric
• Sproutt
• Walnut

Permanent needs, like paying for final expenses or leaving an inheritance, call for permanent life insurance. Universal and whole life are your options for permanent coverage. While it’s more expensive, rates are locked in for life, no matter what happens to your health as you age.

If you have both temporary or permanent life insurance needs, it might make sense to buy both types of policies. A large term policy can outlive your debts while permanent life insurance will be available to your beneficiary to pay for final expenses.

Life Insurance Needs When Starting A New Career

No matter what age you are, starting a career is exciting and brings new possibilities. This is especially true when you’re 23, 25, or even 27 and fresh out of college with a brand new degree.

Most employers offer a benefits package, which may include voluntary employee benefits. This could mean disability, accident and illness insurance, or specified coverage like cancer insurance. It may also include life insurance, which comes at a group rate based on age and coverage amount.

Though it’s probably cheaper to get life insurance through your new job, make sure you read the fine print. Most group life insurance policies aren’t portable, which means you can’t take it with you if you leave your job. And with the median job tenure at 2.8 years for workers 25 to 34, you may not stay at your first company for long.

If you buy just the life insurance offered at your job, you lose out on the years you stayed there if you can’t take the policy with you. Let's say you get the job at 24 and you end up staying until you’re 28. Now you have to get individual life insurance because group life isn’t an available perk at your new job.

Instead of getting life insurance at 24-year-old rates, you’re going to pay more for 28-year-old rates. Compare that over the span of a whole life or 30-year term life policy, and the cost difference can really add up.

Final Thoughts

If you have student loan debt, it’s wise to buy life insurance so your parents, spouse, or co-signer can pay them off. It’s best to buy it in your 20s when you’re young and healthy, so you can get the most coverage for less. If your future includes kids, life insurance can ease the burden of your partner being a single parent.

When you buy life insurance, you’re buying it for those you’re leaving behind, so it removes the financial burden of your loss. Life insurance gives your beneficiary options they may not have had otherwise.