Older members of Generation Y (people born between the 1980s and the year 2000), also known as Millennials, are starting to face some big life events. They’re getting married, purchasing their first homes, and having their first kids. The big life moments should trigger insurance decisions, but many Gen-Yers are less than thrilled to make them.
In fact, according to Deloitte, members of Generation Y tend to view insurance as a “mere requirement that is confusing, expensive, and unnecessary,” and they don’t understand why they need it or how it may benefit them. They give greater attention to saving money, paying down debt, and investing, but protecting their finances doesn’t even come into the mix.
If you are a Millennial moving further into adulthood and facing big life decisions, here are some steps you can—and should—take to build a solid insurance foundation:
1. Buy life insurance. According to the “Millennials as New Parents” study, conducted in summer 2013, the number of households with adults aged 25 to 34 who have children was 10.8 million.
If you are a parent, it is crucial to make sure your dependents will be financially secure in the event of your death, so life insurance should be a key element of your financial plan.
But even if you don’t have dependents, life insurance is a great way to ensure your debts will be paid off in case you pass away unexpectedly. For example, many Millennials have relied on family members to secure private student loans, and they now owe an average of nearly $20,000. Without life insurance, responsibility for those debts could pass on to the family members who had assumed shared responsibility for the loans.
It might seem ridiculous to think about buying life insurance now, but it’s cheapest to do it while you’re still young.
2. Consider disability coverage. I know, you never think you are going to become disabled. When you’re young, you feel indestructible—but you’re actually four times more likely to be disabled than die.
So, if you were disabled and unable to work as a result of an accident or illness, what would you do for income? You could probably crash at your parents’ house—which is not ideal—or you could get disability insurance, which can replace lost income.
While many employers offer disability coverage, some smaller businesses may not. If this is the case for your workplace, you may want to consider buying a private disability policy that will replace 50 percent to 70 percent of your income.
Bear in mind that if your injury is work-related, workers’ compensation coverage may apply.
3. Remember homeowners and renters insurance. Did you know that Millennials are more likely to rent than own their home? Did you also know that if you rent a house or apartment, your landlord’s insurance will only cover the costs of repairing the building itself in the event of a fire or other disaster? It’s a bummer, but you need your own coverage, in the form of renters insurance, in order to financially protect yourself and your belongings.
If you do own your home (whether it’s a house, condo, or co-op apartment), it’s important to be certain you have both the right amount and the right type of insurance. Homeowners insurance covers the structure, your personal belongings, liability, and additional living expenses.
With condo or co-op insurance, you need to make sure you have two separate policies to protect your investment: your own insurance policy, which provides coverage for your personal possessions, liability, structural improvements to your apartment, and additional living expenses, and a “master policy” provided by the condo/co-op board. The latter covers the common areas you share with others in your building, such as the roof, basement, elevator, boiler, and walkways, for both liability and physical damage.
4. Look for a job with health insurance. Once you are out of school or are older than 26, your parents’ health plan won’t cover you. As you sort through job prospects, it’s tempting to go for the opportunity that puts the most dollars in your pocket, but health coverage is perhaps the most important job-related benefit you can get.
Many companies have coverage through a managed-care plan, which means that the healthcare provider makes many decisions, including which physicians are included in the network. Other companies have more flexible plans. In both cases, the employee is responsible for some co-payments, which help keep costs under control.
If your company doesn’t have a health plan, go buy your own. A lot of Millennials wouldn’t sign up for health insurance under the Affordable Care Act, thinking they were healthy and didn’t need it, but no one is immune to illness. Don’t pay the penalty—buy the insurance.
Other things to consider
One last piece of advice: If you live in a place where your property could be flooded, consider buying flood insurance. (Check out FEMA.gov for more information on the National Flood Insurance Program.)If you live in a place where your property could be damaged by an earthquake, buy earthquake insurance. End of story.
After all this, if you have some cash left over, use it to buy an umbrella liability policy. This is especially important if you already have a lot of assets (you know—your house, your car, your money). Even if you’re still building your assets, it will likely come in handy down the road.
Loretta Worters is vice president with the Insurance Information Institute, a non-profit organization whose mission is to improve public understanding of insurance—what it is and how it works. Follow her on Twitter @LWorters.
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