Michael Callahan
An open road of possibilities stretches out in front of today’s young professionals. It’s exciting to think about all the many directions your life and career could take over the next several decades. It’s less exciting to think about all the things that could (and will) go wrong as your life unfolds, but learning to protect yourself and your loved ones is part of adulthood.
Having adequate insurance allows things like car accidents and flooded basements to be nuisances instead of financially devastating events. That’s especially important for young professionals who are still working to build up their savings and credit and can’t necessarily absorb a $5,000 or $10,000 bill after some emergency. Talk to your advisors for specific guidance about insurance planning. But first, review all the possible types of insurance policies that might serve you.
Young Professionals Typically Need:
Health insurance. This one might go without saying, but everyone should have health insurance coverage. Having even a minor injury or illness while uninsured could cost thousands and thousands of dollars in medical bills. You can also be penalized in some states for not having health insurance. In Massachusetts, you’ll pay a penalty on your tax return if you can afford to have health insurance but don’t.
Home insurance. Young professionals who own their own homes need homeowners insurance in case of property damage and to limit their personal liability in case someone is injured on the property. Having homeowners insurance isn’t required by law but mortgage lenders require it before they’ll finance a home purchase.
Renters insurance also isn’t required by law, though a landlord can require tenants to have it. In any case, renters really should protect themselves with this kind of policy. Young professionals who have started investing in nice furniture, clothing and electronics should have a way of replacing those expensive purchases if they’re destroyed. You don’t want to go back to second-hand furniture because it’s all you can afford after your home is trashed.
Young Professionals Might Also Need:
Life insurance. Single young professionals without children don’t typically think seriously about buying life insurance. But if you hope to have a family one day, buying life insurance while you’re in your 20s might be a good idea. Once you have dependents who depend on your income (or the unpaid labor you do at home), the death benefit from your life insurance creates a financial safety net if you die. Buying life insurance when you’re young and healthy entitles you to much lower premiums than you would pay if you waited until your 50s to get it.
Young professionals with significant student loan debt may also want to consider life insurance if their parent/s cosigned their loans. If you died suddenly and your parents were on the hook for your remaining debt, the death benefit from your life insurance could cover it (assuming you name the co-signing parent as the beneficiary on the policy).
Auto insurance. Again, this probably goes without saying. Young professionals living in big cities often don’t have their own cars, so auto insurance is obviously not necessary. But anyone who does own and drive a car is legally required to maintain insurance.
Disability insurance. If you ever become permanently disabled and can’t work, it’s likely you’ll qualify for benefits through Social Security Disability Insurance. Workers become eligible by paying into the Social Security system via payroll taxes. Even young professionals who don’t have a long work history may qualify for disability benefits, assuming they meet a number of criteria.
But SSDI doesn’t help in all cases, so some workers supplement that protection with disability insurance. It can replace some of your income if you’re ever temporarily disabled; for example, if you’re in a car accident that keeps you from working for six months. SSDI wouldn’t provide benefits in that scenario because it’s not a permanent disability.
Young professionals may be able to get disability insurance through an employer or buy it through an insurer. Especially if you’re the sole or primary breadwinner in your household, having disability insurance is something to strongly consider.
Long-term care insurance. It’s not very common for young professionals in their 20s or early 30s to buy long-term care insurance. Hopefully you won’t need long-term care for another 50 years, if at all. But if you’ve ever seen an older relative’s nursing home bills, you might already be nervous about the shockingly high costs of long-term care. Like buying life insurance, buying long-term care insurance when you’re young and healthy can help you prepare for the future with a pretty affordable premium.
Pet insurance. Anyone who’s ever had a pet knows how expensive emergency vet bills are. Young professionals who are still working to build their savings can’t necessarily afford surgery and after-care when their pet is sick or injured. If that sounds like you, it’s worth considering pet insurance.
Insurance Considerations for Young Professionals
- Talk to your financial advisors when you’re unsure about what kind and how much insurance you should buy. You have a limited amount of money to spend at the beginning of your career, and every dollar you spend on insurance is a dollar that you could be putting into a retirement account or investment. It might make better financial sense in the long term to put $200 a month into an interest-bearing account rather than pay an extra $200 each month for a gold-level health plan.
Young professionals have time on their side, and time equals compound interest. Say you put $200 into an account every month for 30 years. If the account earns 5 percent interest, after 30 years you’ll have invested $72,000 and have an account worth nearly $160,000. The more money you’re able to invest in that account early on, the faster your money will grow. At the same time, it’s financially risky to be underinsured. Striking the right spending balance between insurance and investment is something your financial advisors can help with. - Are you one of the millions of entrepreneurial young professionals who have their own business? Maybe you’re thinking about starting a side hustle. Speak to your advisors about business insurance. Protecting yourself from liability can spare you from financial disaster if something goes wrong, like if a customer is injured on your premises.
- Review and update your insurance coverage whenever life circumstances change, especially your life insurance policy. If you get married and/or have children, you’ll need to update the beneficiary information on your policy so your spouse/kids receive the death benefit when you die. Benefits from a life insurance policy can’t be transferred through your will with other assets. They’ll go to whoever’s named on the policy.
Sachetta’s advisors love working with young professionals who are just getting started on their journey. We’re here to help you navigate all the complicated and often confusing questions that come up around money, investing and insurance. Contact us today.
Michael J Callahan, CPA, CFP®, MST has been involved in personal financial planning, as well as both business and individual taxation for more than 15 years. Our ideas about money are formed by our life experiences. Over the years, Mike has seen those close to him make common money mistakes from not having enough life insurance, to not doing the proper estate planning. When he received an inheritance in college and started looking into how he could use it to achieve his goals, he realized that he could use those experiences to help others. He changed his major to Finance, and the rest is history.