You’ve worked hard and are getting ready to enter the "real world." While your top priorities upon graduating from college may be getting a job and finding a place of your own, one of your first steps toward independence will be getting your own insurance policies.
“If you’re out of school, out of your parents’ household, not claimed on their taxes and are fully independent, you need your own coverage,” says Jim Swegle, vice president of product management at Safeco Insurance.
Here’s how to make sure you’ve got all your bases covered once you've taken off the cap and gown.
Once you get your first place, a renter’s insurance policy will cover your belongings in the case of such threats as theft, fire and water damage. Renter’s policies aren’t expensive. “A policy may run about a third of what your cable (TV) costs,” Swegle says.
If you have a lot of expensive items such as electronic equipment or jewelry, ask your insurance agent whether you should consider buying what's known as a rider. Not only will this provide additional coverage, but it often will cover risks that aren't included in a traditional renter’s insurance policy, such as the loss of a valuable charm bracelet.
When shopping for a renter’s policy, start with your parents’ insurance agent, Swegle suggests. “In some cases, a company will give you a discounted price because you’re coming off of your parents’ policy,” he says. You can compare insurance quotes from there.
Once you have a car and you’re no longer a dependent of your parents, you’ll need an auto insurance policy of your own. As with renter's insurance, check with your parents’ agent to see whether you qualify for a discount based on your parents already being policyholders. Also consider getting your renter's and auto insurance with the same insurance provider, since many insurers offer discounts for having several types of coverage under one umbrella.
While some young adults may be tempted to simply duplicate their parents’ coverage in their own name, that might not be the best idea, Swegle says.
For example, “your dad might be totally comfortable with a $2,500 comprehensive and collision deductible and you might say, ‘I don’t have that much sitting in my bank account,’” Swegle says. So a $500 deductible might be more suitable for you. Such factors as driving record, type of vehicle and geographic location will affect the insurance rate; an agent will be able to help you narrow down the best choice.
The time to start thinking about post-graduation health insurance coverage is before you get your diploma, says Ellen Laden, a spokeswoman for UnitedHealthcare’s Golden Rule Insurance Co.
If you’ve secured a job, look first at the coverage being offered through your employer. If you’re still job-hunting, see whether you can stay on a parent’s policy, since the federal health care reform law requireshealth care plans that cover dependents to extend that coverage until age 26. That's the option chosen by Whitney White, who will be graduating this year from Johnson & Wales University in North Miami, Fla.“Since I have a chronic illness, going without health insurance is not an option for me,” she says.
But not all new graduates can take advantage of a parent’s plan.
“There are many health plans that don’t cover dependents, and there are also many parents who have been out of work themselves and who have also lost their health care coverage,” Laden says.
Short-term health insurance, which offers one to six months of coverage, is an option.
“Short-term health insurance is designed to fill in gaps in coverage for new graduates or students coming off of their parents’ plans,” Laden says. Once a graduate gets a job that offers health insurance as a benefit, he or she can drop the short-term policy.
Another option that new graduates can consider is an individual health insurance plan. Since college graduates are typically young and healthy, a high-deductible plan may be the best bet, Laden says.
“For most young people, the higher the deductible, the lower the premium. And that makes sense, because for most younger, healthier people, high-deductible plans will protect you from the big expenses that will put you in medical bankruptcy," Laden says.
Young adults who have a hard time finding a health insurance plan because of a pre-existing health condition should check out the federal government’s Pre-Existing Condition Insurance Plan or explore state high-risk pools.
For young adults who are single with no dependents, life insurance isn’t a necessity, experts say. However, those who are married or have children or elderly relatives depending on them should work with a life insurance agent to determine whether one of two types of policies -- term life insurance and whole life insurance -- are right for them.
While term life insurance is less expensive, “the coverage will end at some point and it may be more expensive to renew the coverage if one's health status has deteriorated,” says Jim Sherratt, vice president at TD Insurance.
Whole life insurance is more expensive, but premiums will not increase and the insurance continues as long as the premium is paid. For a young, healthy adult, any life insurance policy will be the least expensive at this point in time. “The premium rate tomorrow will only be higher than it is today,” Sherratt says.