Protect Yourself and Your Stuff – An Insurance Overview

Many millennials don’t associate insurance as part of their financial picture, but it’s an important piece of financial planning.  We are so focused on saving, paying down debt, and investing, that we sometimes forget about protection planning.  Please note: every person’s situation is different so it’s important to work with a comprehensive financial planner to make sure you have the appropriate insurance coverage.  However, I realize that many people aren’t ready to invest in a financial planner, but could still benefit from some basic insurance guidelines to know where to start.  Here’s a basic overview of essential insurance items for Gen Y:

Health Insurance

There are still so many millennials who go without health insurance, but a serious accident or illness can happen at any time.  Sign up for coverage through your work if it’s available.  If not, you can stay on your parents’ insurance through age 26, or buy an individual policy.

The NEW Health Care Exchange – The good news is that on the new health care exchange, anyone under 30 will be able to purchase a “Catastrophic Plan” which will cover all preventative care plus three primary care visits.  It’s currently open enrollment for the new health care exchanges.  You can go to www.healthcare.gov to shop for a policy.  If you buy a policy on the new Health Care Exchange, you may be eligible for a tax credit if your Modified Adjusted Gross Income (MAGI) is below 400% of the Federal Poverty Limit.  (This would mean individuals making under $44,680 per year and a family of four making less than $92,200 per year would qualify).  Don’t wait until you become sick because you can only purchase insurance on the exchange during open enrollment!  (More to come on this topic, so sign up for The Gen Y Planning newsletter to stay informed).

Property and Casualty Insurance

This refers to your auto, homeowner’s and renter’s insurance (in addition to Umbrella policies which I mention below).  We often think of this as a “fixed” expense, but when was the last time you shopped for an auto policy?  Do you have any idea what the coverage limits are on your homeowner’s insurance?  Do you know if your policies are bundled?  I’m guessing your haven’t looked at this for a long time.  If you haven’t revisited your insurance policies for a few years, find a local independent insurance agent in your area with the ability to shop multiple carriers.  Independent agents work with 10-20 different insurance carriers to bundle your policies together based on your special situation.  Sometimes they are able to provide you with more insurance coverage at a more affordable price.

Umbrella Insurance – I’m not talking about “Singing In the Rain” or that Rihanna song.  Instead I’m referring to excess liability coverage.  This type of insurance covers you above and beyond the terms of your auto and homeowner’s insurance policies.  The minimum amount is $1,000,000 in coverage and it will cost you a couple hundred dollars a year.  This coverage kicks in above and beyond the limits on your home and auto insurance policies.  When might you use your umbrella policy?  Here are three situations: if you get into serious auto accident, if there’s an accident on your property, or if you get sued.

Term Life Insurance

If you have children or a spouse that depends on your income then you need life insurance.  (Be extremely cautions about purchasing anything that is not term life insurance.  Most millennials don’t need anything fancy).  A 20 or 30-year term life insurance policy is all that most people need.  However, you may need more life insurance than you think.  A general rule of thumb is 7-10x your salary.  Often, you can get this type of insurance through your employer, but the risk is that if you lose your job, you also lose your life insurance.  Consider getting a separate policy outside of work.  This can sometimes be less expensive than group coverage if you’re young.

Other reasons you might need life insurance:

• If you have private student loans.  Private student loans are not forgiven at death like federal student loans are.  Make sure you have a policy large enough to at least cover your private student loans.
• If you own a home with a mortgage and want to pass along that home to your heirs free and clear, then you should also purchase a life insurance policy if your assets would not be enough to pay off the mortgage.
• If you’d like to pay for your children’s college, then you better have a lot of life insurance!
• If you are a stay at home parent, then you need coverage too.  If you passed away unexpectedly, you spouse would have to hire a nanny to care for the children.

Supplemental Disability Insurance

For Gen Y, our most valuable asset is our income stream.  If you have a group long term disability policy through your employer then take advantage of that first, because a group policy is more affordable than an individual policy.  However, for some people, the 40-60% of coverage that they receive through their employer plan, might not be enough.  In this case, you can buy supplemental disability insurance, which would cover an additional amount, usually around 20-25% of your income.  If you don’t have any long-term disability insurance then a supplemental policy is going to be extremely important.  (To learn more about short-term and long-term disability insurance, check out my related post on The Most Overlooked Insurance for Gen Y).