November 14, 2017
“But even the best financial plan needs to account for the unexpected,” says Kaleb Paddock, a senior associate in wealth management at Aspiriant. “That’s where owning the proper insurance coverages comes into play.”
Insurance reimburses you for many types of losses that come from accidents, illnesses and other mishaps that are usually infrequent but can be so severe that they could wipe you out financially. It is one type of product that many people are reluctant to buy because you’re essentially paying for something you hope you never use. But to go without it can be absolutely devastating, to which many people who have recently survived the hurricanes in the Southeast or the wildfires in the West this year can attest.
Quality insurance can provide peace of mind that if there ever were an emergency or disaster, you can get back onto strong financial ground.
When you buy an insurance policy, you pay a premium — it can be monthly, quarterly or annually — for specific coverages. Generally, the more you pay, the more coverage you receive.
There are always limits on the types of protection and amounts your insurance will reimburse you for. Many types of insurance, require you to pay some of the damages first, known as a “deductible,” before the insurance company pays anything. In addition, health insurance may have you pay a fixed amount or percentage of each medical cost, called a “co-pay,” before they step in to pay the rest.
You can insure almost anything, from lost airline luggage to massively expensive costs of long-term health care. Life insurance is something to consider in certain situations, for example if it’s offered through your work, or you have a spouse or children. But for now, as you just get started on your own, these are the most important types of insurance you’ll need.
As soon as you drive or own a car, you must have your own auto insurance. Why? First, it’s the law in most states. Second, a single auto accident that’s judged your fault could wipe out nearly everything you earn or own, particularly if there’s a death or serious injury to anyone involved. First, get insured. Then drive safely and legally.
Auto insurance is expensive and may seem complicated for young drivers. Here’s a breakdown of the different types of coverage:
If you own or drive a car, truck or motorcycle in the U.S., you are liable for both property damage and injury to others. Each state has different insurance requirements, but the first layer of coverage you should get is liability insurance. Your auto finance or leasing company may require additional coverage and higher loss amounts than your state.
Be sure you meet your state’s requirements for minimum coverage, and fully understand the coverage and limits of your policy before you buy. It’s a good idea to work with an independent insurance broker who can help you get the best deal, including any discounts available to young drivers.
As you shop for and compare insurance policies, it’s important to also consider the company’s financial strength. The least expensive premium for a given amount of coverage doesn’t always equate to the best deal.
“Even though states tend to highly regulate insurers and require them to have contingency plans in place, you’d like the company you work with to be there for you when a claim is made,” explains Nate Kublank, director in investment advisory at Aspiriant. “Working with a reputable, independent agent will increase the chances you find a suitable insurer, and minimize issues and headaches you could encounter in the event of a claim.”
Unfortunately, human lives do not come with lifetime warranties. Debilitating accidents and chronic diseases strike people of all ages, and the medical costs can be astronomical. Doctors and hospitals often charge more for services to uninsured patients than big insurance companies pay. And racking up medical debt will take a big bite out of your budget and could affect your ability to get financing.
Most importantly, if you get sick or injured, money worries should not prevent you from getting the care you need. That’s why health care insurance is essential.
Currently, under the Affordable Care Act, you likely have access to coverage for most ordinary medical and dental costs under your parents’ plans until you reach age 26. Also, if you’re in college, you may be able to obtain health care insurance through the school.
As you begin your career, you should consider taking advantage of your employers’ group health benefit plans for medical, dental and vision care, if offered. Be sure to budget for these paycheck deductions and save for potential co-pays and deductibles. Some employers offer flexible spending accounts or health care savings accounts, which allow you to set aside an amount you specify from each paycheck to pay medical expenses. These deductions are pre-tax, in other words saving you income tax. However, these accounts do have restrictions on how much you can save and how you spend the money, so make sure you understand them.
If employer benefits are not available, shop for another group health plan or local HMO system for affordable coverage. Your state and federal health-care exchanges would be a good place to start for options. Visit HealthCare.gov for more information. The deadline to apply for federal marketplace plans for 2018 is December 15.
Would you be able to replace your computer, electronics, jewelry and clothing if your apartment was robbed or caught on fire? Then renter’s insurance may be worth the premium. It can help you get back on your feet quickly after a disaster, and the premiums are normally quite affordable.
As you become more established, you’ll want more coverage for major losses. If you buy a home or condo, your mortgage company will require you to carry insurance to rebuild or repair the building in the event of fire, windstorm and other hazards. You’ll also want liability coverage for injuries to workers or guests on your property. Know that floods and earthquakes are not covered by most homeowners policies, so consider specialized insurance if you live in a low-lying area or earthquake territory.
Many people are reluctant to pay for insurance. It can take a good chunk out of your budget that you would probably rather spend on something else. But think of it as buying peace of mind, knowing that the wealth you are building is protected.
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