We all know we need insurance. And we all know we need a variety of different types of insurance: homeowner, auto, health, life…. But did you know that you also need different amounts of coverage, and for each stage of your life? Here’s a breakdown to give you some direction as you make insurance decisions to help protect yourself from the risk and uncertainty that unfortunately is just part of life.
Many students are still eligible for health and auto insurance through their parents’ plans and they don’t typically have dependents or property. This may lead you to think that students don’t need to be part of the insurance conversation, but there is one type of policy that could make a difference to your finances: a hospitalization policy. Hospitalization policies cover unexpected medical costs students accrue from surgery or hospitalization, essentially shielding them and their parents from going into debt to pay for medical expenses.
Young, Single, Working, And On Your Own
The most important types of insurance that those in this stage of life should consider include health, renters, auto, and disability insurance. Most likely your employer will provide health insurance for you, but if they don’t, it is important to research your options to find the best rates available. Renters insurance is very affordable and often required by landlords. It will help protect you in the case of stolen or destroyed property (think jewelry, laptops, or other big-ticket items). And when it comes to auto insurance, it is important to shop around and find the most competitive coverage.
Finally, for this stage of life, disability (or critical illness or income replacement) insurance should be considered. This type of insurance pays a portion of lost wages if you are unable to continue your job due to an accident or illness. Because there are limits and gaps in coverage from your employer, state, and workers’ compensation, it is vital that you also have your own disability policy.
Newly Married Homeowners
As a newly married couple with a house, it’s time to turn your attention to life, homeowners, and liability insurance. The last thing you want to do is get married, buy a new home with your spouse, and unexpectedly pass away. In this extreme case, you would be leaving your spouse with the responsibility for paying off the entire mortgage with one income. If you have life insurance for yourself, you could alleviate such a risk.
Speaking of your home, homeowner insurance policies vary in what they cover, so it is important to make sure you understand the terms. Weigh the pros and cons of purchasing a more expensive policy that will pay for the full cost of rebuilding your home and for replacing your possessions versus a policy that just pays for your home’s market value. (1)
Finally, you should also consider liability insurance, also known as umbrella coverage, which essentially will protect you beyond what homeowners and auto insurance covers. Because your net worth is growing, this type of insurance is important.
The most critical types of insurance to have at this stage include life insurance and health insurance for your children, as well as disability insurance. In the bustle of adding a child to your family, it’s easy to forget about paperwork and logistical details, so make a note to add your new little one to your existing medical policy within a month of their birth so you don’t run into any coverage issues.
If you don’t already have a life insurance policy, now is the time to get one. If you do have a policy, be sure to boost your coverage to include the future cost of raising a child, college costs, and maybe even coverage for a stay-at-home parent. Either way, make sure that your children and spouse are taken care of should anything happen to you.
Another type of policy to revisit is disability insurance. Now that you are providing for children, possibly paying off a mortgage, and reworking your budget to include childcare or a reduced income for a stay-at-home parent, your income needs to be guaranteed. Make sure that you cover the risk of not being able to work due to an injury, accident, or unforeseen complication.
Empty Nesters And Pre-Retirees
This is a pivotal life stage where making decisions for the future comes into play. You may still need many of the above-mentioned policies, but you should also look into long-term care insurance. This type of insurance covers the future costs of long-term care, which may include in-home care or the costs of living at a nursing home to assist with the basic personal tasks of everyday life. There could come a time when you cannot take care of yourself independently, and you don’t want to drain your savings to get the care you need. There are different types of policies, including traditional LTC policies or hybrid LTC policies, so do some research to find the best choice for your situation.
Once you retire, your insurance priorities change. For the most part, you will not need to protect your ability to earn income since you are no longer working. However, as you get older, insurance can significantly lessen the impact of medical expenses and long-term care costs.
When you officially retire and lose your employee healthcare coverage, you will either have to reassess or obtain new coverage on the following: health insurance, Medigap, Medicare prescription drug plans, and long-term care insurance. If you retire early, you may need an additional short-term health insurance policy since Medicare does not kick in until you reach age 65. It is also important to consider Medigap policies since Medicare will most likely not cover all of your medical expense needs. Also, because Medicare Part A and Part B do not cover most prescription drugs, you will need to shop around for Medicare Prescription Drug Plans (Part D). Finally, as discussed in an earlier stage, it is very important to make sure you have LTC insurance. The longer you wait, the more expensive this type of coverage will be.
And remember to take the time to review all of your in-force policies to make sure you aren’t over-insured, and update beneficiaries of your life insurance policy as needed.
What Stage Can We Help You With?
We at Anderson Financial Strategies understand that insurance matters can get confusing quickly. Now that you know that different stages of life bring very different insurance needs, our team would love to help you determine what insurance policies and coverage would benefit you given your unique circumstances and stage of life. If you’re interested in exploring the services we offer, please call us at 855-237-4545 to schedule a meeting to discuss your goals. We look forward to hearing from you!
Shon Anderson is president and chief wealth strategist at Anderson Financial Strategies, LLC with over 15 years of experience. As a fiduciary, Shon’s mission is to provide his clients with quality financial expertise along with rapidly responsive service through an honest relationship. He specializes in providing family office-style services to help his clients organize and focus their financial life. Shon graduated from Wright State University with a bachelor’s degree in financial services and an MBA in finance. He is a CERTIFIED FINANCIAL PLANNER™ (CFP®) practitioner and holds the Chartered Financial Analyst (CFA®) designation. His insights have been quoted in leading financial news publications such as CNBC, Yahoo Finance, Fox Business, Consumer Reports, Forbes, Bankrate.com, Investment News, and Kiplinger. Shon serves as an adjunct professor teaching personal finance courses at Wright State University, leads CFP® exam review courses for Keir Educational Resources, and is president of the CFA Society Dayton. Shon and his wife, Jessica, reside in Sugarcreek Township, Ohio, and are blessed with triplet daughters, Elizabeth, Bridgette, and Alexandra, along with their son, Jacob, and dog, Jack. Over the years, Shon has been involved in several volunteer organizations including the Wright State chapter of Delta Tau Delta as an alumni adviser and was a Big Brother in the Big Brothers/Big Sisters program. To learn more about Shon, connect with him on LinkedIn.