Insurance

I’m graduating soon, and I’m really nervous! I think I’ve learned a lot here in college, don’t get me wrong. And I truly think I’m ready to make the most of my career. But the other stuff — the “adult” stuff, like taxes and budgeting — that stuff still feels really foreign to me.

One thing that I’ve been particularly worried about lately is insurance. For as long as I can remember, my parents have had life insurance and homeowners’ insurance. But I don’t really know when they got them or why exactly they’re necessary. My parents have not been particularly good at explaining it all to me, so I thought I’d ask: what’s with insurance, and when do I need to start thinking about each form of it?

Insurance is very important. Having the right policies will protect everything from your health to your financial future. But there are several different types of insurance, and they all work differently. Let’s run through a few basic ones that you should know about, and when you should start investing in them.

First up is health insurance. This is one of the most important forms of insurance out there. Your health insurance will help you pay for things like regular check-ups and other basic care. This is in the companies’ best interest as well as yours, because the companies will be on the hook for lots of expenses if you get seriously injured or ill and run up large healthcare bills.

Health insurance is vital at all ages. Without it, unexpected medical bills like the ones mentioned above would be all your responsibility. Young people without health insurance may feel invincible, but it is all too easy for one health-related surprise to ruin their finances and long-term care options. You will most likely get health insurance through your work, but make sure that you buy a policy on the individual exchange if you don’t have one!

Car insurance is important too, and it’s another policy that you’ll probably pick up right away. If you have a car, you need car insurance in order to drive it legally in the United States. Why? Because your policy covers damage to other people’s vehicles. Without insurance, you’d be on the hook for that.

Since you might simply not be able to afford to fix the Ferrari you crashed into, there are laws mandating this insurance coverage. You don’t have to stick with just collision coverage, though. You can invest in pricier policies that protect your own vehicle and have coverage for things like windshield repair.

If you ever buy a home, you’ll surely want homeowner’s insurance. That’s the insurance that will cover you if natural disasters and certain other bad things befall your property. If you invest a huge chunk of your net worth in a house, you’ll lose everything if the house burns down; but with homeowner’s insurance, you’ll be protected.

Homeowners insurance can also cover the stuff inside your house. And if you’re a renter instead of a homeowner, then get renter’s insurance. It covers the stuff you have at home, and (because it’s not covering a physical structure you own), it’s quite cheap. It’s a good idea to get renter’s insurance pretty much the moment you move into your first apartment. You might be surprised by how expensive it is to replace your belongings in the event of a fire or break-in.

Finally, let’s talk about life insurance. Life insurance is pretty unique, because it insures against an inevitability: your death. If you get life insurance while you’re relatively young and healthy, you’ll pay an affordable regular premium in exchange for a payout to your beneficiaries when you die.

Life insurance is a must-have for breadwinners with families to care for, because the combination of death-related expenses like funeral costs and the sudden loss of your income would be financially ruinous to your loved ones without an insurance payout. Life insurance companies, for their part, make money off of lapsed policies (if you stop paying your premium, you lose your benefits and get no refunds on past premiums), among other things.

You’ll want to invest in life insurance when you have a spouse or family, if not sooner. And don’t assume that life insurance is only useful if you die young. Hopefully you won’t, and if you live long enough, you may find that you have a financial emergency in sickness or old age that requires you to come up with cash now.

Special agreements called viatical settlements will give you cash in exchange for your eventual life insurance payout. Cash in hand can be more beneficial than assets in such situations, so you’ll want to sell off assets. And you can do that with your life insurance policy if you ever need the money early.

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