Tanza Loudenback and Ronda Lee
Sept. 22, 2021
Insurance isn't the most thrilling to think about, but it's necessary for protecting yourself, your family, and your wealth.
- Buy insurance can help protect yourself, your family, and your wealth.
- Insurance could save you thousands of dollars in the event of an accident, illness, or disaster.
- Health insurance and auto insurance are required, while life insurance, homeowners, renters, and disability insurance are encouraged.
Accidents, illness, and disasters happen all the time. At worst, events like these can plunge you into deep financial ruin if you don't have insurance to fall back on.
Insurance is largely personal, though, and the type of policy or amount of coverage that's right for you and your financial situation usually won't match your friend's or relative's. Plus, as your life changes (say, you get a new job or have a baby) so should your coverage.
Below, we've explained briefly which insurance coverage you should strongly consider buying at every stage of life. Note that while the policies below are arranged by age, of course they aren't all set in stone. If you become a homeowner in your 40s instead of your 30s, for example, that's when the need for homeowners insurance will kick in.
Here's a brief overview of the policies you need and when you need them:
Insurance you need in your 20s
Most Americans need insurance to afford healthcare. Choosing the plan that's right for you may take some research, but it serves as your first line of defense against medical debt, one of biggest sources of debt and bankruptcy among consumers in the US.
Some Americans get health insurance through their employer or a spouse's employer, according to the Commonwealth Fund. Employees who are eligible for coverage through work usually don't need supplemental health insurance.
If you don't have health insurance through your job, you can shop the Health Insurance Marketplace for private insurance options or compare rates through a third-party broker like Policygenius. Remember that you can stay on your parents' health insurance coverage until age 26.
You'll stop needing it: Never.
In 49 of the 50 US states, drivers are required to have liability car insurance to cover any potential property damage and bodily harm that may result from an accident.
The minimum coverage requirements for liability insurance vary by state, but if you finance or lease your car, your lender probably requires comprehensive coverage and collision coverage.
The cost of liability coverage varies depending on your state, as some states require more coverage than others. Your average cost will vary based on the type of vehicle, your location, mileage, and driving record. Some states consider your age, credit, and gender.
The average cost of car insurance premiums nationwide is $199 a month and can fluctuate based on the number of claims and traffic violations a driver obtains.
You'll stop needing it: When you stop driving a car.
Your landlord has insurance that covers the building and structure, but your belongings inside the rental unit are your responsibility. Renters insurance protects renters' personal property from a fire, storm, or theft. It also provides "loss of use" coverage if your rental becomes unlivable due to damage.
If you're living on your own — i.e., not with your parents or on a college campus — you probably need renters insurance. The average cost of renters insurance is around $15 a month, or $180 yearly.
You'll stop needing it: When you stop renting.
Disability insurance is meant to provide income should you be disabled and unable to work due to illness. "More than one in four of today's 20-year-olds can expect to be out of work for at least a year because of a disabling condition before they retire," according to Guardian Life, which notes that illness causes 90% of disabilities and injuries accounts for the other 10%.
If you're relying on a steady paycheck to support yourself or your family, you should have disability insurance. Although many people probably have short-term disability through their employer, long-term disability insurance is the one that most people need and do not have.
When you are injured or ill and unable to work, disability insurance provides you with a percentage of your salary.
You'll stop needing it: Once you exit the working world around age 65, which is often the end of the longest policy you can buy.
Most people aren't thinking about life insurance in their 20s, but it's the best time to buy it because most people's health declines with age. The longer you wait to buy a policy, the greater the eventual cost.
If someone else relies on your income for their financial well-being, then you probably need life insurance. Even if you don't have dependents, there are other reasons to have life insurance: private student loan debt, self-employment, or a family-owned business.
The average cost of life insurance for a 20-something nonsmoker can expect to pay between $20-30 a month for a $250,000 term life policy. That's less than the cost of a gym membership to protect your family's financial stability in your absence.
The best life insurance policy for you depends on your budget as well as your financial goals. There are two main types of life insurance policies to choose from: permanent life and term life.
Your life insurance needs change as you age, and you'll need to consider children, marriage, divorce, retirement, and caring for aging parents.
You'll stop needing it: When your dependents are no longer relying on you for financial support.
Insurance you need in your 30s
Homeowners insurance is not required by state law. However, if you have a mortgage, your lender will require homeowners insurance to protect the investment.
Homeowners insurance protects the home, your belongings, and offers liability coverage for injuries that happen on your property. There are three components to homeowners insurance: dwelling coverage, personal property coverage, and personal liability coverage.
If the mailman slips and falls on your sidewalk, the dog bites a guest, a tree falls on your roof, or the neighbor's kid injures himself in your swimming pool, homeowners insurance can protect you. Coverage varies depending on the type of homeowners insurance you have based on your house type — single family home, condo, mobile home, townhome, etc.
According to the Homeowners Insurance Report by the National Association of Insurance Commissioners (NAIC), the average annual premium in the United States in 2017 was $1,211.
You'll stop needing it: If you sell your home and go back to renting, or make other living arrangements.
Pet insurance may not be considered a must-have, unless you want to shell out $8,000 for your pet's surgery. Some plans even cover routine vet visits and vaccinations, and most will reimburse up to 90% of your vet bills.
Insurance policies for dogs are typically more expensive than policies to insure cats. The average cost for pet insurance ranged from $48.78 per month for dogs, and $29.16 per month for cats for accident and illness coverage. Pure breeds and exotic animals are generally more expensive.
Pet insurance covers health and medical costs. This is not to be confused with pet liability coverage, which protects you if your pet bites or attacks someone. Most renters and homeowners insurance policies offer some type of pet liability coverage.
You'll stop needing it: When you no longer own a pet.
Insurance you need in your 40s
Long-term care insurance
Industry experts say 50% of Americans will need some type of long-term care assistance — at-home care, assisted living, or care in a nursing home — in their retirement. Medicare only pays for 100 days of long-term care, under certain circumstances, for $100 a day. If there is a shortage or difference, you or your family must pay it. This is where long-term care insurance or a hybrid policy comes into play.
For people who are aging or disabled and need help with daily living, whether in a nursing home or through hospice, long-term care insurance can help shoulder the exorbitant costs.
Long-term care is expensive. However, most Americans will need long-term care at some point during their retirement. It's cheaper to get long-term care insurance while you're relatively young and healthy, so you should be considering long-term care insurance in your 40s.
You'll stop needing it: Never.
Subscribe to Business Insider's Financial Insights Newsletter
This Business Insider article was legally licensed by AdvisorStream