Maintaining an appropriate level of insurance coverage is a critical element in preventing financial disaster.
Insurance is a funny product. It's something nobody really likes to pay for. And once you pay for it, it's something you hope you never have to use.
Sounds like the perfect formula for wasted money, right? If you ever get the idea that maybe you don't really need insurance, there are countless horror stories out there to disabuse you of that notion.
We hate to pay for it. We hope we never use it. Yet when the time comes, the lack of it often leads to total financial disaster.
Let's go over the basics of the most common types of insurance.
Here's To Your Health
Recent changes in federal law have made it possible for children to stay on their parent's health plan until the age of 26. That's a positive for many people in this age bracket, as data from Gallup shows that people in their 20s are the least likely to be covered by private insurance.
That's not particularly surprising; young people are generally healthier, and more prone to see themselves as "invincible." Yet medical bills are the number one source of U.S. bankruptcies. The immense cost of just a few days in the hospital can put the average young person behind the financial eight ball for years.
If your employer offers health insurance, it's almost always a smart idea to take advantage - even if you're young and healthy. If you don't have an employer-based option, your best bet is the state and federal health insurance exchanges.
Remember, carrying health insurance is now mandatory. Anyone who fails to do so will be assessed a financial penalty. If you feel like you can't afford the cost of a plan, explore whether you qualify for a government subsidy to help defray the cost.
The Surprising Value Of Life Insurance
Unlike health insurance, life insurance is easy to ignore, making it a back burner issue for many young people. Yet that's often a mistake, as life insurance offers a variety of potential benefits.
If you're the head of a family, or if you have anyone who depends on you for support, life insurance is protection against the ultimate worst-case scenario - something happens to us, and our loved ones are left grieving and destitute.
The good news is that life insurance has become significantly less expensive in recent years. If you're young (think the 20s and 30s), basic term insurance worth eight or nine times your annual income is a good idea. As you get older, you may want to consider a whole life policy, which offers tax benefits and dividends.
Homeowners And Auto Insurance
Just because insurance is mandatory doesn't mean everyone has it - or carries enough coverage. It's essential to ensure that you're carrying the right kind of coverage for all of your major assets.
That means covering the basics. A good homeowners policy covers the cost of the structure, what's inside the house and the cost of living somewhere else while it's being replaced. A good auto policy will pay out more than the minimum coverage required by law in the event of an accident. You may save a few dollars each month by scrimping on your liability coverage, but a severe accident could quickly take everything you own.
Maintaining an appropriate level of insurance coverage is a critical element in preventing financial disaster. It often serves as the thin line between a happy, productive life and total financial struggle.
Don't let yourself get caught without it.