Remember when the hardest thing about money was figuring out how many weeks of your allowance you'd need to save to buy a Nerf Blaster?
Now you know that money is a whole lot more complicated than that, and you've probably been asking yourself a lot of questions:
How do you make a workable budget?
How much should you set aside for emergencies?
What's a 401(k) and do you need one now?
You might have seen these challenges coming, but one thing that might still catch you off guard is just how many decisions you have to make about your insurance. To protect yourself and your finances, you have to start navigating through different coverages, exclusions, premiums, deductibles, and some even more obscure terms (to get familiar with the lingo, see 25 Key Personal Insurance Terms You Should Know and Understand).
It can get a bit overwhelming, so to help you out, I've put together ten of the biggest insurance mistakes you can make in your twenties. If you can avoid most or all of these, you'll be able to get the protection you need without paying a penny more than you should.
1. Skipping on Renter’s Insurance
You might decide to skip on renter's insurance because you don't own much stuff and don't have anything particularly valuable.
That could be a big mistake.
For one thing, what you own is probably worth more than you realize. Just imagine replacing all of your belongings, one by one, if they were destroyed. Your clothing, electronics, any appliances or furniture – it would all add up to one huge expense. With renter's insurance, you wouldn't have to struggle to replace it all.
Even if you're a total minimalist, renter's insurance comes with liability coverage that protects you in case someone is injured while visiting your apartment. If you're sued or found responsible for that injury, it could set you back (weeks, months, or years) financially. Unless, of course, you have renter's insurance (check out these 6 Reasons You Need Renter's Insurance to learn more).
2. Not Carrying Enough Insurance
Okay, you realize need insurance so you reluctantly agree to buy a few policies, but you try to save some money by buying the cheapest ones you can find. If you go looking online, you can even find one-size-fits-all insurance policies for as little as a few dollars a month.
When it comes to insurance, however, you often get what you pay for. Policies with low prices that look too good to be true often have some pretty bad terms. Going cheap means you might have a really high deductible (which means higher out-of-pocket expenses if you ever need to file an insurance claim), a low maximum payout (leaving you underinsured), or a long list of perils that won't be covered.
These limited policies don't just leave you with a lot of out-of-pocket expenses; they can also leave you open to a personal lawsuit if you're involved in an accident that exceeds your coverage amount.
3. Buying Too Much Insurance
Not buying enough insurance is a mistake, but overdoing it isn't great either.
When you're in your twenties, you don't need to insure against every possible outcome in life. Some policies are essential, but others are just nice to have and you might be better off saving or investing the money you'd spend on them.
If you're not sure how to strike the right balance, get in touch with an insurance advisor. They'll help you figure out what you need and what can wait (find out How to Pick the Right Insurance Agent).
4. Thinking You're too Young for Life Insurance
In your twenties, life insurance might seem like a distant concern. If you're an average American, your life expectancy is pretty good, and if you haven't settled down yet, you don't have a spouse a children who depend on you for support (for related reading, see Life Insurance for Stay-at-Home Spouses: Wasteful or Prudent?).
But if you think that means you should put off buying life insurance until you're in your forties, you're wrong.
What you might not realize is how incredibly cheap your life insurance will be if you buy it now compared to the price you'd pay if you waited. And the best part is, you can lock in that low rate for decades.
You'll never be this young again, so be sure to buy life insurance while it's still affordable (learn more in The Perfect Age to Get Life Insurance).
5. Thinking Disability Insurance Isn't for You
Being young doesn't exclude you from injury or illness. And it could sneak up on you when you least expect it.
Since you're so early in your career, chances are you don't have a lot in the way of savings, investments, and assets. If you lost your income due to a disabling injury or illness, the financial outcomes will likely be devastating.
Unless, that is, you have disability insurance to fall back on. It will provide you with a minimal, but likely sufficient, source of income while you recover or adjust to your new realities
6. Choosing a Really High Deductibe
A higher deductible means lower monthly or annual insurance costs. But it comes at a price.
Let's say you choose a $1,000 deductible on your property insurance. You'll be paying lower premiums, but it also means that you won't be able to recover anything for property damage or loss that falls under $1,000.
That might not be enough to cover your laptop and probably won't be of any help if you need to replace your camera or a major appliance.
And even if you do have property damage above $1,000, that's a lot to cover out of pocket. If you file a successful claim for $1,200 of property damage, you'll only recover $200 (see An Overview of Insurance Deductibles for more details).
7. Not Shopping Around for Insurance
The insurance company two blocks from your place seems reputable, and the insurance agent you spoke to seemed knowledgeable. But that doesn't mean you shouldn't do a bit of research.
Not all insurance policies are created equal. It might seem at first, like every insurance company offers generic products, like auto insurance or renter's insurance. But look closely at the details and you'll see that there's a lot of variety out there.
Look for a policy that fits your budget, but make sure you're looking at more than just the quote you're given. Look at the exclusions, insurance limits, and clauses to make sure that you're really comparing the same kind of coverage (learn How to Pick the Right Insurance Company).
8. Ignoring Exclusions
Insurance policies are contracts, and like any other contract, they have exclusions.
Exclusions are a list of circumstances in which your policy won't pay. If you're not careful, you'll be uninsured even when you think you're protected.
For example, if you're going to use your car to earn money with a side hustle and get into an accident, your personal auto insurance might not compensate you. Your renter's insurance might also not pay anything to replace your jewelry or collectibles (learn more in An Intro to Insurance Sublimits).
So, before you sign on the dotted line, make sure you know what the insurance won't pay for. And if you need to, look into adding an endorsement to your policy or buying a separate policy to make up for those exclusions.
9. Making Assumptions
You assume your insurance provider knows that you took driver’s education classes.
You assume your insurer knows you have a safety alarm system in your home.
You assume your they know your apartment has double-bolted doors and a security cam.
Don't make any assumptions about what your insurance company knows about your situation. If you've taken any steps to reduce your risks, you might be eligible for discounts on your insurance.
10. Not Reviewing Your Policies Every Year
Life changes quickly. And if you're in your twenties, chances are you haven't settled down permanently yet. It's essential, then, to review your policies regularly to make sure you don't need any additional coverage and that you're not paying for insurance coverage you no longer need.
Getting married, having kids, upgrading your place, buying nicer stuff – any of it could make a difference to your insurance needs.
Insurance isn't always easy to navigate, especially if it's your first time buying any. But it's not something you can just shrug off. Having the wrong policy could cost you or leave you unprotected.
If you're still left with questions and worries, it's worth consulting an insurance expert before making any decisions. They'll be able to help you figure out what you need and avoid any costly mistakes.