Important Insurance for Young People
You’re young. You’re healthy. You know insurance is important — but it can also be expensive.
Plus there are many different kinds. There’s health insurance, of course. But there’s also vision insurance and dental insurance. There’s car insurance and renters insurance, too.
Are all of them really necessary? And how can you protect yourself while keeping costs low?
It might be tempting to take your chances, but when you do, you risk a huge financial hit. Plus, fortunately, many employers provide insurance benefits to their workers, which can help lighten the burden of monthly premiums.
So what types of insurance should young people consider? The answer depends on your unique needs, but here are nine of the most common types of insurance to get you started.
No. 1: Health insurance
Health insurance covers the risk of a person incurring medical fees. It is a contract between an insurer and a policyholder that requires the insurer to pay for a portion of any incurred medical expenses.
Health insurance typically covers expected and unexpected expenses — such as regular checkups, medications, and hospital stays. Medical debt can add up for those who are uninsured due to out-of-pocket costs — and health insurance can help minimize those costs.
What it protects against: An expensive health care visit.
What employers offer: Generally, employers with 50 or more full-time employees must provide health insurance, according to current federal law. Otherwise, they risk paying a hefty tax penalty. Although some companies choose to pay the tax penalty, many provide robust health insurance, included in a benefits package, or an alternative arrangement.
No. 2: Dental insurance
Dental insurance covers expenses related to teeth and gum issues. Dental plans often don’t cover advanced cosmetic procedures, including crowns or veneers. That’s why it’s important to use the coverage for preventative care, such as annual cleanings.
What it protects against: An expensive dental visit.
What employers offer: Employers aren’t legally required to offer dental insurance, but it is standard for companies offering competitive benefits packages to include some form of dental insurance. For instance, employer-sponsored dental insurance might depend on the employees' status as full- or part-time.
No. 3: Vision insurance
Vision insurance describes a health plan specific to eye care. This coverage reduces costs associated with preventative eye exams and prescription eyewear, whether contact lenses or glasses. A vision plan may also cover a portion of elective correction surgery.
What it protects against: Expensive eye care and prescription eyewear.
What employers offer: Employers aren’t legally required to provide vision insurance to employees. Thanks to competitive industry standards, companies often include vision insurance in order to attract the best talent.
No. 4: Life insurance
Life insurance pays the beneficiary of the insurer an agreed-upon amount to cover the costs of the deceased. A beneficiary is a person named to receive benefits, such as a parent or spouse. Does life insurance for young people make sense? According to some experts, it does. A 20-something will likely pay lower premiums when they are young compared to later in life. And a life insurance policy covers unpaid debts — like private student loans that fall to a co-signer, often a parent or guardian. Ultimately, life insurance eases the burden left on loved ones.
What it protects against: Post-mortem expenses that burden a loved one.
What employers offer: Life insurance is an optional employer benefit. Many companies pay for a portion of the life insurance coverage and provide additional coverage at a low cost to the employees. One advantage to an employer benefits package is the tax benefit associated with employer-sponsored group-term life insurance. For instance, employers are allowed to offer up to $50,000 of tax-free insurance to their employees.
No. 5: Disability insurance
Disability insurance secures and protects income when someone isn’t able to work for an extended time due to a disability. It’s basically guaranteed money. There are short- and long-term coverage options lasting from a few months to several years.
What it protects against: A loss of income due to an inability to work.
What employers offer: Many employers offer disability insurance, but the type of coverage differs by company. Short-term disability leave is the most common. It covers a few days to a few months. Temporary disability insurance (TDI) is more extensive and covers short periods of disability ranging from 13 to 26 weeks. In fact, five states — California, Hawaii, New Jersey, New York, and Rhode Island — and Puerto Rico have state-mandated disability insurance requirements. Long-term disability insurance (LTD) provides coverage if you’re out of work for a longer period of time.
No. 6: Renters insurance
We work hard for our belongings, so keep them protected. Renters insurance covers a tenant’s personal property and the landlord’s property in the event of damage or theft. For instance, if a fire or other disaster ruins your belongings, an insurance plan will reimburse you a set amount for the damages. In fact, many property managers and landlords require renters insurance. Even if it’s not required, consider buying it for peace of mind.
What it protects against: Unexpected property loss, damage, or injury while renting.
What employers offer: Employers typically don’t offer renter’s insurance.
No. 7: Homeowners insurance
Own a home? Homeowners insurance keeps your finances secure, insuring the property itself, items within the home, and any legal or medical bills in case someone is injured on your property. It not only applies to your house, but also any associated structures, including a garage or balcony. Certain types of homeowners insurance can even cover damage from the elements — fire, wind, or flood. Depending on the geographic location you reside, you may find that your policy covers weather damage for an additional fee or under a separate deductible.
What it protects against: Unexpected damage and repairs during homeownership.
What employers offer: Employers typically don’t offer homeowner’s insurance.
No. 8: Automotive insurance
Auto insurance protects cars, trucks, and other vehicles against damage or injury as a result of driving. This includes both accidents and reckless driving.
It is illegal to drive a vehicle while uninsured. Laws require drivers to have, at minimum, liability insurance, which covers damage to someone else’s property. In certain states, driving without insurance is a criminal offense — so don’t do it.
What it protects against: Unexpected damage, collisions, vandalism, or theft.
What employers offer: Not all companies offer automotive insurance, but larger companies are more likely to provide group coverage options. A policy plan is more common at companies that employ drivers or offer company cars.
No. 9: Pet insurance
Pet insurance covers a portion of veterinary treatment for hurt or sick animals. There are two common types of pet insurance: a wellness plan and health insurance. A wellness plan covers expenses associated with routine visits, vaccinations, and medications. A comprehensive pet health insurance plan covers emergency room visits, major surgery, genetic diseases, and chronic conditions. The cost of pet care is expensive, but pet insurance helps spread the costs out over your pet’s lifetime.
What it protects against: An expensive veterinary visit.
What employers offer: Pet insurance is one of the fastest-growing and most in-demand voluntary insurance benefits. It’s a great example of how employers are broadening their benefits plans to attract millennial and Gen Z talent.
Why is insurance important for young people?
There are unique benefits of having insurance as a 20-something. And risk management is at the forefront.
Daniel Kachani, a CHS insurance advisor at Wealth Insurance, said insurance is a fundamental tool in risk planning that should be a part of everyone’s financial future:
“It is extremely advisable for young people to take care of their long-term insurance needs early, while they are healthy and can qualify for locked-in favorable rates,” he said.
John Barnes, the operator of My Family Life Insurance, said “[favorable rates] give [young people] the ability to maximize their wealth elsewhere, particularly at a time when they are a bit older with peak-earning ability.”
Insurance allows young people to secure their finances while focusing on larger goals — such as financial freedom and wealth building. For instance, health insurance ensures that an unexpected medical expense doesn’t drain an emergency fund or cause a reliance on credit, creating debt.
“Not having a proper level of insurance prevents a young person from truly maximizing his or her wealth in other areas, whether that is the stock market, real estate, and/or a business,” Barnes said.
Insurance is important, so don’t drop the ball. Assess your needs, take stock of your finances, and get the coverage that’s right for you.
John Barnes received an MBA and has been a certified financial planner since 2009. Barnes offers a unique perspective on insurance. He started My Family Life Insurance to provide honest, trustworthy advice and economical insurance solutions to individuals, families, and businesses.
Daniel Kachani is an insurance and estate planning professional at WEALTHInsurance.com who specializes in using creative life insurance structures for wealth preservation, tax mitigation, and strategic philanthropy.