What insurances are needed after graduating?

Answer 1

The question as written is very broad, and a complete answer could amount to a short course in Personal Finance. That said, at a minimum, you will want to consider the following categories of coverage:

Car Insurance: If the vehicle is fairly new or is financed, include collision coverage with as high a deductible as you can reasonably afford to pay (this is the out of pocket amount that you will be required to pay toward repairs). If the vehicle is quite old, collision coverage may be disproportionately expensive relative to the value of the car, so instead, you can set aside an amount each month toward the expected down payment on a replacement car for when the time comes.

Also regarding car insurance, be sure to maintain liability coverage. Your state may mandate certain levels of this coverage in order to register the car, but those are fairly low. This insurance will provide a defense and indemnify you, up to the policy limits, if you are in a collision that is your fault (wholly or partially) and a claim is made against you. Although you may not have many assets now that can be seized by a judgment-creditor, judgments have a life of many years and will therefore "follow" you. An unpaid judgment can also result in the suspension of your license and tags under a state's Financial Responsibility Law.

Finally as to car insurance, be sure to get uninsured/underinsured motorist coverage. This compensates you for your injuries if you are permanently injured in a collision by an uninsured driver, but to the extent that you may be partially at fault, your recovery will be reduced. It is an optional coverage, but your state may require you to expressly reject it when you purchase liability coverage.

Homeowners / Renters: Homeowners insurance has three primary components: physical damage coverage for the structure of the house, contents coverage, and liability coverage. The liability coverage protects you by furnishing a defense and indemnity payment if a person is injured on the premises as a result of your negligence (as defined within the terms of the policy). Some of the contents coverage comes essentially standard with most homeowners policies, but additional contents coverage can usually be purchased (such as for jewelry). It may also provide additional living expense coverage if you have to vacate the premises and move elsewhere due to a covered loss.

Renters coverage is similar to homeowners, but is primarily contents coverage in nature. It may also provide coverage for additional living expenses like homeowners coverage. The landlord's policy should cover the structure of the building.

Health insurance is critical. It is often available through work, and if it is, participate because group rates may be available. You may even be able to get it through an alumni association if applicable to your circumstances. If you do not qualify for a group policy, check into an individual one. There is more to a discussion of health insurance purchase than can really be done in this forum, but be absolutely certain that the entity that is financially responsible for the payment of claims is licensed to transact insurance business in your state.

If true health insurance (indemnity coverage) is not affordable, you can consider a medical discount plan. These are plans by which health care providers have agreed to furnish services at a reduced cost. Understand, however, that you are financially responsible for the payment of all charges, plus the cost of enrollment in the plan. The plan assumes no responsibility for the charges. Providers on the plan routinely change, so be sure to make sure that he/she/it remains a participant before you see the provider, and that the advertised discount is actually what will be given.

Life insurance: There are fundamentally two versions, term life and whole life. Term is less costly because it is "pure protection" in the sense that it provides only a death benefit. It lasts for a definite "term" (for example, 20 years), and if you do not die within that period, it expires. If you do, it pays the face value to the designated beneficiary. There are options that can be purchased that allow you convert it at various points in your life to "whole life".

Whole life is often referred to as "permanent insurance" in the sense that it accumulates cash value, which is in a sense, a forced savings feature. After premiums have been paid for a time (how long depends upon the policy), the policy may become self-supporting ("fully paid-up") such that no future premiums need to be paid. Other options may be available such a "waiver of premium" provision such that future premiums are waived if you become totally disabled. This usually has to be elected at the inception of the policy and increases the premium.

Whether you choose to go for term or whole life, you are well advised to buy it while young. Although you will pay premiums for a longer period, you are less likely to have chronic illness, and more likely to qualify for preferential premium rates (strive for at least "Standard", but ideally "Preferred" or better if available). Again, make sure that the insurer is authorized to transact business in your state--this can be done by contacting the state's Department of Insurance.

Disability Insurance: This is intended to replace income caused by an inability to work. Statistically, you are far more likely to be disabled than to die, so this insurance is critical. Often, an employer provides short-term disability insurance as a benefit of employment. It will provide some percentage of your income for a relatively short period of time (90 days or so) with the expectation that you will be back to work.

However, you also should purchase long term disability coverage, and this is generally done privately. It can be fairly costly, but less so if you purchase it while young. You will have to guesstimate financial needs, but since the monthly benefit that the insurer will approve is tied to your income, you will not be able to drift too far afield. This should be reviewed periodically as you progress in your career so that there is an accurate correlation between current earnings/needs and the monthly benefit.

Also as to disability insurance, you can reduce the premium to a degree by increasing the "elimination period". This is the time between which the qualified disability occurs and the insurer has to start making payments. If you can, through personal savings or otherwise, support yourself for a period of time, you can opt for a longer elimination period. Because the insurer does not have to start payments as quickly, it will usually charge a lower premium.

Finally as to disability insurance, you may be given a choice between an "own occupation" policy and an "any occupation" policy. The first type will generally pay if you are rendered unable to perform the material duties of the job that you had at the onset of disability. The second is geared to payment only if you cannot perform any job for which you are reasonably suited by training or experience. Often, a disability policy will be a hybrid in that it defines disability in terms of "own occupation" for the first number of years, and "any occupation" thereafter.

Because the issues involving disability insurance are complex, it is a very good idea to consult a licensed agent or broker who is very experienced in disability insurance. Generally, an "agent" is an insurance licensee who represents one or a couple of insurers, whereas a "broker" represents many. Therefore, a broker often has many more sources to which to go to help meet your needs.