If you’re lucky, insurance is something you’ll purchase for years and never need to use. Some people, including me in my younger days, might view that as a waste of money. But here’s the thing I’ve come to realize about insurance: it’s your safety net, the equivalent of an emergency fund.
It’s there to protect you & your assets when disaster strikes, without bankrupting you in the process. And on the off chance life throws you a curveball, you’ll be grateful you have it.
Insurance certainly isn’t the most fun or sexy topic. It won’t make you rich quickly, and you can’t quantify its value like you can with an investment account. But it’s important to understand that there are types of insurance that are best to consider when you’re young and healthy in your 20s and 30s to save yourself financial strife later. In fact, it’s important to have a blanket understanding of how life insurance works too.
Life happens, and it’s important to consider how much insurance can actually do for you instead of thinking about what it costs.
And trust me, with your finances on the line, you’ll definitely want something in place that’s there to protect you and your loved ones before disaster strikes.
My Insurance Education
I was brought up understanding that there are a few kinds of insurance you need to have. Among these were health insurance and car insurance. These were positioned to me by my parents as non-negotiables for any adult.
So as I entered the working world and adult life in my early twenties with an employer-sponsored medical plan and car insurance, I thought I was all set.
It was only after I started my first corporate job and began talking to co-workers that I learned about renters, life, and disability policies. When I was barely making ends meet, living paycheck to paycheck, I just couldn’t fathom putting out money for something I wouldn’t necessarily use or ever see returns on.
But once I began to understand the benefits of a sound insurance policy, it all started to make a bit more sense.
Why Do You Need Insurance?
Insurance is a means of protection against the unexpected. You can think of it as the bonds in your well-balanced portfolio. Insurance is designed to help you balance the risk you inevitably take by doing a little thing called being alive.
That includes unanticipated consequences that result from injury, illness, accidents, or disasters. Without insurance, these types of events could have massive financial implications.
Insurance to Consider in Your 20s
Your 20s is a time where you’re just starting to build your life and your financial position. The right kind of insurance at this age can be the difference between getting ahead and getting beaten down by life before you ever get going.
If you’re still on the fence about if certain insurance policies are right for you, here’s some of the most common types of insurance that nearly every 20-something is bound to run into at some point:
If you’re renting a place with friends or on your own, renter’s insurance is one of the least expensive ways to protect your possessions. A renters insurance policy often covers damage to your possessions from theft, fire, or vandalism.
Like many people, I didn’t have much when I first left college and moved into a place with roommates. My core possessions were my clothing and bedroom furniture, and that was about it.
For around $11 per month, I took out a renters policy that would have nearly replaced all my belongings if something happened. I was lucky and never made a claim through the years.
But trust me when I say I rested easier at night, knowing I wouldn’t need to shell out a bunch of money I didn’t have if something terrible had gone wrong.
If you had a money printing press in your home office that put out several thousand dollars per month, you’d likely want to protect it, right?
Because if something like a hurricane swept through or a burglar stole it, your family’s money source would be gone.
You can think of life insurance as the policy to protect your real-life money machine. You!
The premise behind life insurance is to protect those who depend on you financially after your death.
Based on your family situation, life insurance is one of those things that might be a good look in your 20s or 30s at the latest for a few reasons:
- You’ll save $$$: A term life policy is far cheaper to lock in when you’re young vs. trying to get one in your 40s or 50s. This is because you’re more likely to easily pass the medical requirements associated with taking out a life insurance policy.
- Your family is protected: Especially if you’re married with young children, you’ll want to make sure your family is financially supported in your absence. This is particularly true if you have student loans or other debts that would need to be paid.
I bought a 30-year term life insurance policy around when I turned 30 and was engaged to my now-husband. I got an excellent rate due to my age and health. Now I’ll be paying around $100 a year for hefty coverage that will carry through to my 60s.
My hope is by that point in my life, I’ll be worth more alive than dead and will no longer need a life insurance policy to protect my family.
In a nutshell – life insurance should be considered until the day you have amassed so much wealth that having it is unnecessary.
If you’re like most 20 year olds, and your saving or investment accounts are looking a little dry, a solid life insurance policy might be the perfect thing for you while you continue to build wealth.
I’ve heard horror stories about people who have paid $5,000 or more for a pet’s emergency surgery. And while I think that’s legitimately insane, I have to admit that if any of my fur babies were in that position, I could see shelling out that kind of cash too.
If you’re a pet owner who would pay anything to keep your animal around for as long as possible (hi, that’s me), it might be a good idea to price out pet insurance.
Keep in mind that most pet insurance policies are designed for catastrophic coverage. That means they are more focused on the emergency surgery and cancer diagnosis than the annual well visit.
Especially if you love a breed that’s prone to specific genetic abnormalities or issues, it might be beneficial to weigh the cost of care later in your animal’s life vs. the cost of a good pet insurance policy.
Insurance to Consider in Your 30s
By the time you’re in your 30s, you may be focusing more on building your nest and protecting your family. If you haven’t yet considered each of the policies outlined above, that’s an excellent place to start.
If applicable, you might also consider:
Umbrella Liability Policy
If you’ve accumulated a bit of wealth or started your own business, an umbrella liability policy is a great thing to consider. This type of insurance policy is typically recommended for those with more than $500,000 in assets to protect.
I’ve always said that I’ll know I’ve made it when it’s time for an umbrella policy.
The umbrella policy comes in handy if someone would look to sue you for any reason for an amount above and beyond that of your standard policy for auto or homeowners insurance, whatever the case may be.
For instance, if someone were to get injured in your home and sue, the umbrella policy could cover beyond what your homeowners policy would pay—thus putting you in a position where your personal assets wouldn’t be at stake.
When you’re young and healthy, the last thing you’re considering is that an injury or illness would cause you to be out of work for an extended period.
But the reality is that most people run a risk of losing income at some point in their working lives due to illness, injury, pregnancy, etc.
A good number of employers offer long-term or short-term disability as part of a standard benefit package. So if you work for a company, that’s the first place to check.
If you’re not lucky enough to have an employer-sponsored plan, it’s worth pricing out alternatives for a private policy.
The most important aspect of shopping for a disability policy is fully understanding what types of claims will be covered to make sure you’ll actually be able to get what you pay for if the need arises.
The Bottom Line
When you’ve got your whole life ahead, it can be challenging to plan for the unexpected.
But spending smartly on insurance policies can offer protection that may help you financially down the line. To get smart on insurance, be sure to:
- Look at options: Review several different companies and compare the policy’s price against the coverage provided.
- Only buy what you need: If you make $40,000 per year, you may not necessarily need a $1 million term life policy. Make sure the policies you consider are relevant and applicable to your current financial situation.
- Talk to an expert: Find a reputable agent in your area who can help you understand what coverages you need. Be sure to understand how the agent is compensated to ensure they aren’t making fast cash on signing you up for policies that won’t benefit you.
It’s hard to quantify the peace of mind that comes from having the right insurance policies.
But if you can put them in place in your 20s and 30s, it certainly sets you up for a lot less stress in your later years.
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