One of the more disconcerting aspects of becoming an adult is realizing that things don’t always work out for the best. That’s where insurance comes in. By paying a premium to an insurance company, you can protect yourself against disasters ranging from a flooded apartment to an injury that prevents you from earning a paycheck.
Unfortunately, buying insurance is something between a chore and a nightmare. Many insurance agents work on commission. It’s not surprising, then, that young people end up buying policies that either inappropriate or unnecessary.
While no one knows what the future is going to hold, actuaries–whose job is to figure out the odds of bad things happening–have a pretty good idea. With that in mind, here are the types of insurance that a 25-year-old without children should have and what he or she can probably skip.
This is the biggie. Health care costs contribute to half of all personal bankruptcies filed in the U.S., according to a study by researchers at Harvard University. Despite the risks, 18- to 29-year-olds make up about a third of the nation’s 47 million uninsured.
Cost clearly has something to do with that. But there’s also the thought among younger people that they don’t need health insurance because they won’t get sick. By passing on this type of insurance, you will always be one accident away from medical bills that could saddle you with debilitating debts for years to come.
If you have a job, your employer may offer some type of health plan. Talk with your Human Resources office to make sure that you understand exactly what your plan covers and what it doesn’t so that you won’t be stuck with an unpleasant surprise. (If your aren’t offered health benefits, please read “What to Do If Your Job Doesn’t Offer Health Insurance.”)
Somewhere along the way, the health insurance industry decided that your teeth were separate from your body and excluded them from most health plans. If your employer offers dental insurance as part of a benefits package, then it’s a smart idea to take it. But if there isn’t a dental benefit, you may want to skip it, especially if you have already had your wisdom teeth taken out. The monthly premiums may cost more than having your teeth cleaned, and may not offer that many benefits if you need extensive work done. (If you’re reading this before you graduate from college and you have dental coverage through your parents’ insurance, consult your dentist now. It’s often better to have wisdom teeth removed before problems develop anyway.)
Most young workers don’t need to life insurance because no one is depending on their income. One thing to consider is whether you have a relative or family friend who cosigned on your private student loans. While federal student loans are canceled upon death, most private loans are not. That’s right: Even after you die, your cosigner may still owe money to Sallie Mae. Typically, private loans have a clause that says that the loan becomes due in full immediately upon the death of the borrower, says Mark Kantrowitz, the publisher of FinAid, a Web site that tracks the student loan industry.
Because you aren’t around to pay it, lenders will go after your cosigner to repay the remaining principal. By taking out a life insurance policy that insures up to the amount of your debt, you can spare a relative that financial shock. Just make sure to designate them as your beneficiary on your life insurance policy.
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