When 20-Somethings Might Need Extra Insurance
Jennifer Saranow
Apr 24, 2005
When you're in your 20s, it's a no-brainer to get basic types of insurance like health coverage. It's also easy to figure out what types of insurance you probably could do without -- like life insurance, which is designed to take care of dependents if something happens to you.
But renters insurance and disability insurance fall somewhere in between. Here's a look at whether you should get them:
Renters
Many young people -- and people in general -- believe that renters insurance is not really mandatory. Nearly two-thirds of participants living in rental properties said they didn't have renters insurance in a 2003 survey conducted for the Independent Insurance Agents & Brokers of America, an Alexandria, Va., trade group of independent insurance brokers.
If your property is lost or stolen, however, or if someone gets injured in your apartment and sues, the costs of replacing your possessions and covering legal expenses are your responsibility and not your landlord's.
Rental insurance is designed to protect you in these instances. If your possessions are lost due to a fire, theft or other causes including water damage, rental insurance policies generally either: 1) cover the cost to replace your possessions up to your limit minus a deduction for depreciation; or 2) cover the actual replacement costs up to your limit.
Policies also include a liability part to cover legal and other expenses if others get hurt in your rented space, and may cover some additional living expenses if you're unable to live in your apartment because of, say, a fire.
Policy premiums, or the price you pay for the coverage, average about $200 and are based on variables including how much protection you want and how close you are to a fire department.
But not everyone needs the insurance. You need to consider your particular situation when deciding whether to buy it or not.
First, look at how much you have in your apartment, including your clothes, furniture, electronics and other possessions. If you would be able to cover the cost of replacing the goods on your own, then you probably don't need renters insurance. If not, then the insurance is something to look into.
"The decision you have to make is: How much stuff do I have? Do I really need to insure it if all I have in the rented apartment is a television and a boom box? I would say no," says J. Robert Hunter, director of insurance at the Consumer Federation of America.
Here's a good touchstone: The Independent Insurance Agents & Brokers of America recommends those with possessions worth $15,000 or more get the insurance, since such amounts of goods can be hard for most to replace.
Beyond your physical possessions, you also should consider your other assets. If you have lots in the bank and might be viewed as having deep pockets, you may want to opt for the insurance to protect you if someone gets hurt in your apartment and sues you.
You also are a candidate for the insurance if you have frequent visitors, raising the odds of injuries. Madelyn Flannagan, vice president of education and research at the Independent Insurance Agents & Brokers of America, says the insurance is a good idea if you work from home or if you "have a lot of folks in and out of your apartment, like deliverymen, or if you host a lot of parties."
If renters insurance sounds like something you might need, there are ways to save on the cost. Premiums are based on how much coverage you get, so the less coverage you opt for, the less you pay for. There also can be discounts. At Allstate Corp., for example, you can get a 5% to 15% discount if you have a fire alarm or smoke alarm in your unit.
Disability
Disability insurance, best thought of as income-replacement insurance, provides monthly payments if you are out from work for serious illnesses like cancer or injuries like fractures. It's different from critical-illness insurance that pays a lump sum to cover medical payments.
Short-term disability insurance policies cover you when you're out of work anywhere from a few weeks to two years. Long-term disability coverage provides monthly income for a longer period, ranging from a few years to age 65 or older.
Because having enough income to cover bills is a big concern for many young people, many insurance companies selling individual policies target the programs at twentysomethings.
Guardian Life Insurance Co. of America, for example, this April came out with a document, "Target Market: Young Professionals," to help its agents identify ways to get in touch with young professionals and sell them disability insurance. (One tip: Join young professional associations.)
The insurance industry's argument is that young adults need the coverage because they are much more likely to become injured than die. According to the Insurance Information Institute, young adults are four times more likely to be disabled by an illness or injury than die.
Many people in their 20s, however, don't really need to buy an individual policy.
Insurance Information Institute spokeswoman Loretta Worters recommends asking yourself this question, "Suppose I got sick for six months, what would happen?" You may not need the coverage if you live at home and don't have a lot of expenses or if you can rely on your parents.
But if covering your own bills if you were out of work for an injury or illness would be a concern, you still probably don't need to look further than your employer for coverage. Most employers, especially large businesses, offer both short-term and long-term insurance so getting covered involves little more than checking out your workplace benefits program.
How much coverage you get, and how much you will have to pay out of your own pocket, varies by employer. According to MetLife Inc., which offers both group and individual disability policies, employer programs generally cover 50% to 60% of employees' salaries.
On the other hand, you may want to consider getting an individual policy if you're self-employed or if you don't think what your employer offers would cover your expenses and lifestyle if you couldn't work. Employer policies generally don't include parts of your salary like bonuses.
Visit WSJ.com now for additional insight on the most important stories of the day.
Related Stories
Extra Expense of Flood Insurance Will Pay When Waters Rise Again
by Deborah Lohse
Who Needs a Flood Policy?
by M.P. McQueen
Web Site Aims to Fight Insurance Fraud
by M.P. McQueen
Top FiDeals
