Insurance protects you and your assets against risk.
For example, imagine that an uninsured motorist hits your car, totals it and sends you to the hospital. Between fixing your car, lost wages and hospital bills, you are out $50,000. With adequate auto insurance, you will not have to pay this bill yourself.
What if you take out a $200,000 mortgage on a home that is later wiped out in a flood? Without proper flood insurance, you would have to continue paying on a home that may no longer exist.
You may have heard that high medical bills are one of the leading causes of bankruptcy. Sufficient medical insurance can shield you and your family from losing everything that you have.
You may be thinking: I'm young, and I don't have anything yet. No money, no home – why do I need to be insured? Well, did you know that your future wages could be garnished if you are found responsible for major damage in an automobile accident? Braving life without proper insurance is like hiking through a blizzard without a winter coat. You are taking your chances that the journey of life will be without risk, this is rarely the case.
If you have a car, you probably already have some experience with auto insurance since it is required in every state but New Hampshire. The amount of insurance required by law varies from state to state but typically is limited to a basic liability policy[D1] . The key is to get the right amount of insurance for your particular situation. If your vehicle is financed, you may be required to carry certain insurance minimums designed to protect the creditor against losing its investment. If you own your vehicle, you have more options. Here are some terms that you need to know:
An insurance deductible is the amount you must pay in the event of a claim. For example, if you have a $500 deductible, and you cause $2000 worth of damages to your car, you are responsible for paying the first $500.
Typically, the higher the deductible, the lower the premium, or monthly payment. If you have an emergency fund in place, you will feel more comfortable choosing a high deductible plan.
If your car is not worth very much money and you have an emergency fund in place, you should consider foregoing collision insurance. Without collision insurance, this means that if you get into an accident and your car is totaled (damaged beyond repair) , you will have to pay 100% of the cost to repair or replace your vehicle. You should do a cost benefits analysis to determine if this coverage is worth it to you.
For example, if collision insurance will cost you $500 more per year and your vehicle is only worth $3000, what are the odds that you will total your car in 6 years? If you believe the odds are low, you may be better off skipping this form of coverage. However, keep in mind that people who lease a car or take out an automobile loan are often required to buy collision insurance as a condition of the lease or loan.
This is coverage which pays to repair or replace the vehicle and personal property inside of it if it is damaged or lost due to a reason other than an accident, such as fire, theft, flood or vandalism. On insurance policies considered to be full coverage policies, comprehensive coverage is often sold with collision insurance, because they each cover what the other does not. While collision covers the vehicle in an accident, comprehensive covers other types of damage that may occur.
When you take out auto insurance, it is important to comparison shop. Talk to several different insurance agents, research coverage and educate yourself on the risks and rewards of certain types of insurance. Many insurance policies offer discounts for features like air bags, antilock brakes and security systems. In fact, some even offer lower rates for good grades. And over time, many insurance companies will give you "good driver" discounts if you have maintained coverage with them for a period of time without incident.
Due to the high cost of medical care, it is important to maintain adequate health insurance. Consider the fact that the average expenditure for a hospital stay is around $10,000. Since even relatively minor procedures can cost thousands of dollars, it is a good idea to maintain coverage throughout your college years and beyond.
How to Get Health Insurance
Your best bet is to enroll in a group health insurance plan, either through a parent's plan (if you are younger than 26 years old), your employer's plan, or your college's plan.
Through Your Parents
As long as you are younger than 26-years old, you can be added to your parent's plan. It may not even cost them any extra money. Find out if this is an option before pursuing alternatives.
Through Your School
Many universities offer inexpensive, high quality plans for students. Check with your school to find out what plans are offered to students. You may need to be a fulltime student to enroll in a school-sponsored plan.
Through Your Employer
Employers generally offer health insurance plans to fulltime employees, though some extend these plans to part-timers. Check with your employer's human resource department to find out if you qualify for employer-sponsored health insurance. Find out if coverage can also be extended to your family, if you have dependents (spouse, children).
On Your Own
You can also purchase a health insurance plan on your own, from an insurance broker. Depending on the state where you live you may have the option of choosing between a comprehensive plan and a major medical plan. Comprehensive plans have higher monthly payments and cover more expenses with a low to no deductible. Major medical plans have lower monthly payments and higher deductibles. As a young healthy person, major medical may offer you a better value, but you will want to have an emergency fund in place to cover minor medical problems, since you will be responsible for the deductible.
Cell Phone Insurance
One type of insurance you may not have thought very much about is cell phone insurance. While every plan is different, depending on your provider, you may want to do the math to figure out if this coverage is worthwhile for you. Read your agreement to understand the terms of your insurance. For example, one popular plan offers cell phone insurance for $5 per month with a $50 deductible. That means that the company will pay $150 to replace a $200 phone. You are only responsible for $50 of the replacement cost. However, at $5 per month, you would have to lose or damage your phone within a 2.5 year period for this coverage to be worth it to you.
Look at your track record. If you've never damaged or lost a phone in years, this may be a waste of money for you. If you tend to drop your phone often or spill water or coffee on it and need frequent replacements, then go for the coverage. $5/ month may not seem like a lot of money, but every dollar adds up over time. This is another situation where a well-stocked emergency fund can come in handy.
A final note on insurance and emergency funds: Cell phone insurance is just one insurance option in a number of protection plans now available for electronics, furniture and appliances. By paying extra when you purchase an item, the retailer or manufacturer offers you a plan to help cover repair or replacement of the item. Before automatically opting in to these protection plans, run the numbers. Look at your past experience with similar items? In a sense, these plans can be thought of as stand-ins for an emergency fund. When you have money saved up, a broken refrigerator or computer does not become a crisis.