As a young adult, you’re likely near the bottom of your earning potential. You may be repaying student loan debt while trying to save a little for the future home and family you hope to have. At the same time, you want to enjoy adulthood as much as possible by traveling or hanging out with friends.
So that last thing you want to spend your limited income on is a bunch of insurance policies.
Welcome to adulthood.
Insurance is critical in the lives of young adults. It can help them avoid major financial losses.
As you purchase coverage on your health, your income, and your property, it’s important in this beginning stage of life to find a balance between adequate coverage and affordable coverage.
Here are the five types of insurance that all young adults should have and ways to save on your coverage.
Health insurance for young adults
Since 2019, the federal government no longer requires health insurance coverage. However, five states and the District of Columbia may assess a penalty for not having health insurance, including:
- California
- Massachusetts
- New Jersey
- Rhode Island
- Vermont
Without a federal mandate, young people may be tempted to go without health insurance. It’s easy to roll the dice that you won’t become seriously ill or injured rather than pay the potentially high cost of coverage.
However, more than two-thirds of personal bankruptcies are attributed to medical debt. Although having health insurance doesn’t eliminate out-of-pocket medical bills, it can help cover a majority of those costs.
Depending on your policy, health may pay some or all of the cost of doctor visits, prescription drugs, hospital stays, and surgical procedures. Many people get group coverage through their employer. This is usually an affordable option for young people because the employer subsidizes much of the premium cost.
If you don’t have a group health insurance option, you will have to buy your own individual health insurance policy. The best way to save money on an individual policy is to go through the Individual Health Insurance Marketplace at HealthCare.gov. What you pay for health insurance through the marketplace is based largely on your income; therefore you can find an affordable plan for your budget.
If you’re under the age of 26, the Affordable Care Act enables you to continue receiving health insurance coverage under your parents’ plan.
If you must get your own coverage, the best way to save money is to get a high deductible health plan (HDHP).
As its name implies, an HDHP has a larger deductible than other health plans. The deductible is what you have to pay for care in full before your insurance benefits take effect.
For 2021, the IRS defines a high-deductible health plan as one with a deductible of at least $1,400 for an individual or $2,800 for a family. An HDHP’s total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) can’t be more than $7,000 for an individual or $14,000 for a family.
Because you’re paying a higher deductible, the premium for an HDHP is lower than it is for other plans. This is a great option for young people who don’t anticipate having regular medical bills. You will save on premiums but still have coverage in the event you have a serious medical problem.
Another way to take advantage of an HDHP is to enroll in a health savings account (HSA). An HSA is like a personal savings account, only the money is designed to cover health care costs. Only people enrolled in an HDHP can set up an HSA.
Premiums you pay for health insurance and money you contribute to an HSA are tax-deductible.
If you are a full-time student, many colleges and universities offer student health plans.
Dental insurance for young adults
Dental insurance is another expense young adults may opt to skip. However, if you take care of your teeth and see a dentist twice a year, your insurance typically covers 80 percent to 100 percent of preventative care.
Insurance will also help pay for fillings, root canals, extractions, crowns, dentures, and bonding. As a young adult starting out on your own, the last thing you need is a major dental expense you can’t afford.
Keep in mind, however, that dental insurance will typically not cover the full cost of procedures. Basic procedures like fillings and extractions are 70 percent to 80 percent covered. Major procedures are usually only around 50 percent covered.
The top-rated dental plans charge between $20 and $60 a month based on the percentage of procedure costs covered, the deductible, and the annual maximum benefit.
The American Dental Association says that, on average, adults ages 19 to 34 spend approximately $492 on dental work annually.
As with health insurance, many dental plans allow young adults to remain on their parent’s plan until they reach age 26. However, the Affordable Care Act does not mandate this as it does with health insurance.
The best option for dental insurance is to buy through your employer’s group plan. If you need an individual plan instead, dental insurance is also available through HealthCare.gov.
You can buy a health insurance plan that includes dental coverage or a separate, stand-alone dental plan. The stand-alone dental plans have two levels of coverage. One charges higher premiums for lower copayments and deductibles, while the other provides lesser coverage with a lower premium amount.
If you are contributing to an HSA as part of your HDHP, you can use the money in that account to cover most dental expenses. This includes regular preventative care, as well as the procedures covered by insurance. Paying for cosmetic dental work with an HSA is not allowed.
Auto insurance for young adults
If you own and/or regularly drive a car, you’re required to have a minimal amount of liability coverage. This ensures that if you damage property or injure somebody while operating your vehicle, the insurance can help pay for the damages.
Unlike other types of insurance, youth is a detriment to buying auto insurance. The younger you are, the more you will pay in premium because of the higher risk of being in an accident.
However, there are ways young people can save on auto insurance:
- Drive safely. Your driving record is one of the main factors that determine your auto insurance rates. Avoid moving violations to keep your rates down. You can also save money by enrolling in a usage-based insurance rating program offered by a number of carriers. These mobile apps can track your driving habits, such as acceleration, braking, and mileage. The better you drive, the more discounts you can qualify for.
- Drive less. It may not be possible to reduce your mileage, but insurers will charge you less if you are on the road less often. Public transportation is one way you can keep your car off the road.
- Drive a car that costs less to insure. The more expensive the car, the more your insurance will cost. Also, some models and vehicle styles (e.g. sports cars) are more involved in accidents than others. Plus, if you take out a loan to buy a car, your lender will require full coverage, whereas an older car paid for in cash should only need liability coverage.
- Get good grades. Many insurers offer discounts for full-time students who maintain a minimum grade point average.
- Maintain good credit. Insurer carriers often use credit scores when calculating your policy rate, provided your state allows it. The better your credit, the better your auto insurance rates.
Life insurance for young adults
Young adults often forgo life insurance. Many don’t have spouses or children who depend on their income. They have other spending priorities, and death is the furthest thing from their minds.
Yet there are several reasons why young adults should have life insurance.
Even if you die without dependents, there will likely be expenses related to your funeral and settling your estate. Any debts you have, including private student loans, will need to be repaid upon your death, especially if somebody has co-signed for a loan.
Even if you don’t have an immediate need for life insurance, there’s one key reason young adults should get covered anyway: It will never be easier or more affordable to buy.
For example, one source showed that the average term life insurance rate per month is just less than $16 for people in their 20s. It increases slightly to just over $16 for those in their 30s. People in their 40s pay an average of $22 while those in their 50s pay just under $48.
Young adults should take advantage of group life insurance coverage they have access to through an employer or membership organization. They should also have their own individual term life insurance policy that isn’t dependent on employment or group membership.
If your budget is limited, you can save money on term insurance by choosing a shorter term. A 10-year term policy is more affordable than a 20-year or 30-year.
It’s also possible to buy a smaller amount of life insurance today and increase your death benefit later as your needs grow.
One way to increase your death benefit amount in later years is to buy a guaranteed purchase option (GPO) rider, sometimes referred to as a guaranteed insurability (GI) rider.
This rider enables you to increase the amount of your coverage without having to go through the underwriting process. There may be limits on how you use this option, such as the amount of death benefit you can add and when you can increase coverage.
Learn More: Life Insurance for Young Adults
Disability insurance for young adults
Once you begin earning an income, you should strongly consider having disability insurance.
Your income is what enables you to have a place to live with food to eat and the other necessities of life. Lose that income because of an inability to work due to an injury or illness and you’ll be back to living with Mom and Dad.
And don’t think it won’t happen to you. According to the Social Security Administration, you have a one in four chance of becoming disabled at some point before reaching retirement.
One way to protect your income is by buying disability insurance. This is a type of policy that pays a monthly benefit, based on a percentage of your income, if a covered injury or illness limits your ability to work.
One of the underwriting factors that determine the cost of disability insurance is age. The younger you are, the less you will spend on coverage. Waiting until you think you can “afford” it will add to the cost. One of the concerns about buying disability insurance in one’s 20s is knowing that your income will likely increase in the future.
The solution is to make sure your disability insurance policy includes a future purchase option, similar to what is available on life insurance. It enables a policyholder to increase the amount of coverage at a future date without having to undergo additional underwriting. The added coverage will increase your premium if you elect to exercise the option.
Other ways to save on disability insurance while you’re young include:
- Staying healthy. The underwriting process for disability insurance will include an assessment of your health. The healthier you are at the time of application, the less you will pay in premium.
- Only buy what you need. Disability insurance policies typically include many optional riders and features that add to the overall cost. While some of these features are worth the extra cost, others are too expensive to be of much value.
- Compare disability insurance quotes. Don’t assume that all disability insurance policies are the same. In fact, the premium rates on similar policies with similar features offered by the top six insurers can vary by more than 30 percent.
- Find a multi-life discount program. This type of program provides the cost savings of a group policy with the flexibility and ownership of an individual policy. Basically it requires three or more employees of a common employer to purchase individual disability policies at the same time. Each member of the multi-life program can save anywhere from 10 percent to 25 percent on their premiums.
- Pay your premiums annually. Most insurance companies offer a significant discount if you pay your premiums once per year instead of monthly. In fact, the average cost of paying monthly is 3.9 percent more among the top 6 disability insurance companies than paying annually.
- Consider a graded premium structure. Many disability policies offer a choice between a level or graded premium structure. With a level premium, you pay the same amount for the life of the policy. A graded structure, on the other hand, starts with a lower premium payment that gradually increases over time.
Learn More: Disability Insurance for Young Adults
This article originally appeared on Meetbreeze.com and was syndicated by MediaFeed.org.
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Understanding the life insurance application process
So, you’ve honed in on the kind of life insurance that fits your situation, the amount you might need and the length of time you predict you will need coverage. To obtain a policy, the first step is to fill out an application with your carrier of choice.
The insurance company will review it for completeness. If any information is missing, the insurer will likely follow up to ensure that the application is completely filled out. Some carriers may conduct a phone interview when someone applies, while others do so only if an application is incomplete.
Then comes the underwriting process. During underwriting, carriers review the application with an eye toward the steps that will be needed to determine what a premium will be for a particular applicant.
They will, for example, review height and weight to see what health category a person falls into based on body mass. They will also determine what kind of medical exam and/or physician statement will be required.
Processes can vary somewhat from one insurance carrier to another, but at the core of it all, carriers are trying to determine risk factors. They use actuarial tables to help gauge how risky it would be for them to issue a particular life insurance policy, and then price the policy accordingly.
One key table focuses on mortality. A carrier would look at a person’s age and gender to determine the average years of life the applicant would likely have left, all other things being equal. Can they predict that with certainty? Of course not. But this is a core part of the process nevertheless.
Of course, not all people have the same degree of health, and neither do their families. This is why life insurance applications ask about family health history and a person’s health history and lifestyle.
Questions about family health history will focus on diseases relatives have had that can affect an applicant’s lifespan expectancy—because some diseases can have a hereditary component. The queries will almost certainly include questions about significant diseases experienced by parents and siblings, including cancer, heart disease, and diabetes.
For each disease listed, the insurance company will likely want an applicant to list the age at which the medical condition first appeared, and, if the family member is deceased, the age of death.
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Besides asking about height and weight for actuary tables— and a date of birth — the application will ask personal lifestyle questions, including about smoking, alcohol use, recreational drug use and hobbies that could be considered high risk. There can also be questions about exercising habits.
Personal health questions can include “yes” and “no” answers to a variety of medical conditions, plus request a list of prescription medications taken and surgeries performed.
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A life insurance carrier will sometimes require a medical exam before issuing a policy.
The exam may be similar to a person’s regular annual physical. A medical tech will likely ask questions that are similar to those on the application, and a professional will conduct a physical exam. It can include measuring height and weight, checking blood pressure and taking blood and urine samples.
In some cases, an EKG may be performed to measure the electrical activity of the heart. Men over age 50 may need to have a prostate-specific antigen test done to check prostate health.
When medical exams are required in applying for life insurance, it’s part of the underwriting process that helps a carrier understand the risk level of insuring the applicant. The tests performed can indicate if a person has high blood pressure, high cholesterol, elevated glucose or other health issues.
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Before answering any life insurance application questions, a consumer will need to decide what kind of policy makes sense, the dollar amount to request and from what carrier.
One key consideration is whether to go term or perm: if a term life policy makes sense or if a permanent-life policy would be better.
Term life and whole life insurance have important differences. Term life is simpler and more straightforward. Someone purchases a policy for a certain dollar amount and term, and then has life insurance coverage for the designated time period (10, 20, 25, or 30 years, for example).
If the policyholder keeps up premiums and dies within that term, beneficiaries will receive the appropriate payout. Monthly payments are generally fixed with term life policies.
Reasons people choose term life include:
- Term policies almost always cost less than whole life, usually significantly so.
- Policyholders predict they’ll have enough money saved by the time the policy expires.
- Beneficiaries are expected to be financially independent by the time it expires.
Whole life policies, which also require regular payments, are intended to last the holder’s entire lifetime — there is no expiration date. They cost up to 10 times as much as a term life policy because part of that money is invested into what’s called the policy’s cash value.
Policyholders can typically borrow against their cash value at an interest rate that’s specified in their policy. They may also be able to cash in their policy to receive money; that action closes out the whole life policy. Whatever is left over after the policyholder dies will be distributed to beneficiaries.
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Here are the answers to some common life insurance questions you may have.
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Yes, because carriers generally base policy price on risk factors, buying a policy when you’re young and healthy typically means lower premiums. Plus, with some term life insurance policies, buyers can lock in pricing when they purchase and locking in at a low rate can be a financial plus.
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Yes, some insurance carriers do allow this kind of flexibility. Current policyholders can check with their carrier. New applicants can check with the carrier to see what kind of flexibility is provided. If that’s important to them, they can choose a carrier that provides what they desire.
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Maybe, although it can be good to have that benefit, these policies are generally in the amount of one to two times an employee’s salary.
That’s typically not enough to address debt and provide sustained financial help to beneficiaries, which is why it may make sense to purchase a second policy.
Plus, employer plans may not be portable. If the employee leaves the company, the policy may be terminated.
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Each person’s situation is unique. Some use the DIME formula to determine the right amount. That acronym stands for debts, income, mortgage and education.
What will be needed to cover all of those bases? To streamline the process, you might want to calculate your life insurance needs.
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Possibly, an agent can educate a consumer about what’s involved in getting a life insurance policy. This can be especially helpful if the process seems overwhelming.
Many agents work on commission, so using one that does charge a commission will cause the cost of the policy to go up. Higher commissions are typically charged on whole life policies than on term life.
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Correct, not all agencies charge commission.
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For some people, it could be tempting to downplay personal health issues when filling out a life insurance application.
That is never a good idea. If someone didn’t fully disclose the truth about their state of health and died within two years of getting a policy, the insurance company can delve into the details. If information is found to be lacking or inaccurate, the carrier can deny beneficiaries the payout.
Learn more:
This article
originally appeared on SoFi.com and was
syndicated by MediaFeed.org.
Ladder Life term life insurance policy made available through Ladder Insurance Services, LLC (Ladder) and underwritten by Fidelity Security Life Insurance Company, Kansas City, MO. Product availability and features may vary by state. Not available in New York. The California license number for Ladder is OK22568. Policy Form No. ICC17-1069, M01069, Policy No. TL-146.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Evgenij Yulkin
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