Young adults are often strapped for cash. They’re repaying student loans and trying to save for the home they hope to buy someday.
Having the right policies in place can give them peace of mind while they’re still building wealth. Here are some of the top types of insurance they should have.
Health insurance protects you against a large financial hit in the event of an unforeseen illness or accident. Without it, a six or seven-figure medical bill could easily wipe out your retirement savings and other investments.
Most traditional health plans include some coverage for hospital costs, and most also offer medical management programs to help you stay healthy. In the United States, all non-grandfathered major medical policies are required to cover a set list of 10 essential benefits.
The type of health plan you choose depends on your needs and budget. Common types of health insurance include a Health Maintenance Organization (HMO), Exclusive Provider Organization (EPO) or Preferred Provider Organization (PPO). HMOs require you to select a primary care physician and may only pay for healthcare providers within their network. They typically also have copays, deductibles and referral requirements for specialist care. PPOs give you more freedom to select your own providers but still have co-pays, deductibles and referrals for specialists.
Life insurance helps pay for a person’s funeral costs and other expenses in the event of their death. While not everyone needs a policy, people with dependents and debt need to consider it.
There are several different types of life insurance available, with a few common characteristics. The type of policy you choose depends on your specific situation, but most types of life insurance include a premium (payments to the insurer) and a death benefit.
Term life insurance provides coverage for a set amount of time (most commonly 10-, 15- or 20-year terms) and is typically the most affordable option. Whole life insurance (which can last your entire lifetime and has a cash value component) is more expensive, but offers the peace of mind that comes from knowing your family will be taken care of.
Burial or final expense policies are small whole life insurance policies that provide a minimum death benefit of $5,000 to $25,000 and are designed to help with funeral expenses. These are often a good choice for older adults.
Almost every state requires drivers to have car insurance. Getting the minimum required coverage is one thing, but most drivers also want to consider adding optional types of insurance as well. These can include comprehensive, collision and uninsured/underinsured motorist coverage, among others.
The cost of premiums can be reduced by bundling auto and home insurance or by agreeing to a higher deductible. The deductible is the amount you must pay out of pocket before the insurer starts to cover damages.
For young adults, the cheapest options for car insurance typically come from companies like Erie and Travelers. Both have average full-coverage premiums of less than $200 a month. Other ways to keep rates low can be to take a defensive driving course or maintain a clean driving record. Additionally, you can reduce costs by opting for add-on coverages like roadside assistance and guaranteed asset protection (gap insurance). Be sure to tell your agent, broker or insurance company if you change cars or introduce new drivers in your household.
Homeowners insurance covers your house and belongings from damage caused by things like fire, theft, severe weather or burst pipes. It can also pay for temporary living expenses if your home becomes uninhabitable after a disaster. And, unlike auto or health insurance, a homeowners policy usually includes liability coverage to protect you from lawsuits stemming from injuries sustained on your property.
The main part of a home insurance policy is called dwelling coverage, which promises to rebuild your home if it’s destroyed by fire or crushed by a falling satellite (it happens). It typically also covers detached structures like garages and fences up to 10% of the overall dwelling coverage limit.
Other parts of a home insurance policy include personal property coverage and medical payments coverage. The former reimburses you for lost, stolen or damaged items – typically at their depreciated value – while the latter pays for medical bills for people who are injured in your home or on your property.