The Guide to #Adulting in Your Early Twenties
So, you have graduated– or are just about to, and that means you need to really start thinking about 'adult' things (if you haven't already), like RRSPs, wills, and insurance. Slightly intimidating! Well, not to worry, because today we have a fabulous guest post from professor and insurance expert Todd Erkis, who who just released his new book, "What Insurance Companies Don’t Want You to Know: An Insider Shows You How to Win at Insurance."
As graduation day approaches, an estimated two million young adults in the U.S.(1) will begin their journeys into the “real world.” But there’s still much more to learn beyond the university lecture halls. Learning to live as a grown-up – also known as adulting – can be a rude awakening for new college graduates as many move off-campus and begin to manage their own money for the first time.
One #adulting lesson that is particularly difficult for many people, regardless of age, to understand is insurance.
In his new book, "What Insurance Companies Don’t Want You to Know: An Insider Shows You How to Win at Insurance," insurance expert Todd Erkis provides a user-friendly guide to insurance. Here are his top tips to help young adults objectively determine the most important insurance they need and how to get the best price for it, so they can win at insurance #adulting.
1. Insurance is key to protecting yourself against financial ruin — Insurance is a strange investment in that people pay for it, but hope they’ll never need to use it. Insurance may seem like a waste of money for young adults beginning their careers, but this investment may be the one thing that protects them against financial ruin for the rest of their lives. According to a Harvard University study, medical expenses account for approximately 62 percent of personal bankruptcies in the U.S.(2) Additionally, an estimated half a million people in the U.S.(3) will file for bankruptcy this year alone. Insurance is an important investment to protect your future, and you should look for insurance that protect yourself against the risk of financial ruin at the lowest cost possible.
2. All young adults need health insurance, even if they are healthy — Some young adults think that health insurance is too expensive to purchase, but they can actually save money by purchasing it. Health insurance acts like a discount program for medical services, so those without insurance pay significantly more for medical services than those with it. Additionally, people who can afford health insurance but choose not to buy it have to pay a government-mandated fee called the individual shared responsibility payment.(4) Most insurance companies kick dependents off their parents’ policies when they turn 26, at which point they can opt in to their employer’s insurance (group insurance), remain on their parents’ insurance for an additional cost, or purchase a separate healthcare plan (individual health insurance) through insurance companies or their state’s health insurance marketplace.(5) Regardless of which option you choose, all young adults need health insurance, even if they are healthy.
3. The second most important insurance for young adults is long-term disability insurance — If a person becomes sick or injured and is unable to work for a period of time, long-term disability insurance protects them against loss of income. Young people just starting their careers may not have much money saved yet, but they rely on their current and future incomes, so long-term disability insurance helps them protect that income and their futures. For someone who is twenty-five years old, the probability of becoming disabled before retirement is more than three times the probability of dying.(6) Since many employers don’t offer long-term disability policies, one can be purchased through insurance companies.
4. Renters should purchase insurance – While young adults might have limited belongings, the belongings they do have are important and valuable, and should be insured. Renters insurance is a comprehensive way to protect all of your belongings in the event of theft or damage, and often protects these belongings both inside and outside the home. When purchasing renters insurance, it’s important to have your property and belongings appraised every year to ensure proper coverage. Individuals can purchase renters insurance through insurance companies.
5. Finally, make sure your car insurance protects you and not just the other person — Paying the bare minimum price for car insurance might seem sweet, but this car insurance is usually designed to only protect the other person in an accident, and wouldn’t cover a situation where you or your car is damaged. Make sure your car insurance is comprehensive and covers you, your car and the other car, should a collision occur.
About the Author: Todd Erkis is FSA, CERA, MAAA, and professor of finance and risk management at Saint Joseph’s University in Philadelphia. Prior to becoming a professor, he spent more than 25 years as an actuary, developing insurance products and helping set prices for insurance. His book, "What Insurance Companies Don’t Want You to Know: An Insider Shows You How to Win at Insurance," provides a guide to everything you need to know about insurance and is now available on Amazon.
(1) “Fast Facts.” National Center for Education Statistics (NCES) Home Page, a part of the U.S. Department of Education. 24 Apr. 2017.
(2) “Top 10 Reasons People Go Bankrupt,” The Huffington Post. 24 Mar. 2015.
(3) “How Many People File for Bankruptcy Each Year,” Bankruptcy Truth. 29 Jun. 2016.
(4) “If you don’t have health insurance: How much you’ll pay,” HealthCare.gov. 24 Apr. 2017.
(5) “How to Buy Individual Health Insurance,” Insure.com. 13 Jul. 2016.
(6) “Death vs. Disability,” Affordable Insurance Protection. 24 Apr. 2017.