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There’s a phrase in the financial world that you may have heard it before: ‘the best time to start investing is when you’re young, the second best time is right now’. It refers to the power of compound interest, and the benefit of having time on your side. The earlier you start, the more benefit you can capture.
I believe the same thing is true for insurance. The best time to get insurance is when you’re young, the second best time is right now. This article keeps in mind life insurance and living benefit insurances (critical illness, disability, etc). Here are three reasons why I believe this to be true:
Insurance Is Cheapest When You’re Young
Insurance gets more and more expensive with each birthday you have. Insurance quotes are based on three things: age, smoking status, and gender. So the older you are, the more expensive it becomes.
Some people have the mindset that they’ll get insurance later, closer to when they think they will need it. But they don’t think about or take into consideration the fact that insurance prices will increase every year. Looking at the numbers, by waiting, it will actually cost people more in the long run.
Getting insurance early locks you in at a reasonable price for a long time. In theory, insurance will be the most expensive in year one (even though the price doesn’t change). The reason being is every year you should make more money than the year before, and inflation will increase. So each year the amount will feel like less and less.
Your Health Could Decline
Another risk with waiting is your health can actually decline, making it either very expensive or impossible to get the insurance coverage you’re looking for. If the risk of something bad happening to you becomes too high, then it doesn’t make financial sense for an insurance company to insure you because they are likely going to lose money. And at the end of the day, insurance companies are businesses, aimed at making money and being profitable.
It doesn’t even necessarily need to be your health that declines. A lot of illnesses can be genetically linked, and on applications, insurance companies ask if an immediate relative has been diagnosed or has had a major decline in their health. If a parent, sibling, or close blood relative has, it could hurt your chances of getting complete coverage without exceptions (situations where you won’t have coverage).
Getting insurance early is kind of like an insurance policy for your future self. It says that no matter what happens in the future, you have insurance, and will always be able to have insurance (if your policy is convertible or guaranteed renewable). If you feel like you don’t need insurance now, but you know you will (going to buy a house, have a family, etc). Then it makes sense to get insurance now, so you’ll absolutely have it when you do need it.
Bad Things Don’t Wait to Happen
If your house was on fire, how likely would it be that someone will sell you house insurance? Highly unlikely. If you just got into a car accident, do you think you would be able to get car insurance for it? Definitely no. The same thing is true for our health.
Once you need insurance, you can’t get it. It doesn’t work any other way. Insurance companies are very good at calculating risk. They look at a situation and say ‘how likely is it that something will happen?’, and ‘if something does happen, what will it cost us?’. So if the risk is immediate, or already here, there is no cost-benefit to them.
Insurance is one of those things that we hope we never need. But when we do need it, we are very glad it’s there. In the case of life insurance, or living benefits insurance, those come up when there’s already been a terrible situation — a death, a diagnosis, an accident, or illness. I believe the right insurance can help you and your loved ones focus on getting better, or dealing with a terrible situation, and not have to worry about the finances.
If getting insurance is on your to-do list, I’d strongly recommend acting sooner rather than later. Whether you get it now or in the future, it will take you the same amount of time. But you’ll be able to save a lot of money, and ensure you can get the coverage you need. You wouldn’t drive a car without car insurance, you wouldn’t own a house without having house insurance.
About the Author
Winnipeg based Financial Advisor focusing on investments, financial planning, and mortgages. I prioritize education, because I believe the more we know, the more we all benefit. It allows me to help people make the most of their financial future.
Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.