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Financial firsts: Know what kind of insurance you do and don't need
Knowing what sort of insurance you need can be confusing to an inexperienced shopper. Here's a helpful guide for young people buying insurance for the first time. - photo by Jeff Wuorio
Financial planner Glen Clemans is all too familiar with how young people often misunderstand insurance or ignore it completely. The passage of the Affordable Care Act (ACA) and the attendant publicity have done little to change that.

"Even with the ACA, I still see young people who go without health insurance," the Portland, Oregon, resident said. "Often they don't see the value in that nothing bad has happened to them yet. Either they don't understand how the tax penalty works, or they figure that the tax is less than the cost of the insurance."

That misunderstanding applies to other forms of insurance. Winston Churchill once described the Soviet Union as "a riddle wrapped in a mystery inside an enigma." The same might be said for insurance particularly for young people investigating varied forms of insurance for the first time.

Indeed, there are seemingly countless types of insurance, ranging from the mainstream to the marginal. But knowing which forms of coverage genuinely matter and what to look for when shopping for them can boil down to a welcome and understandable few.

Health insurance

The ACA has brought the topic of health insurance to the forefront. The law requires all individuals to obtain health insurance or face a penalty (as of 2016, the penalty will be 2.5 percent of annual household income or $695 per person less for children under 18 whichever is higher.)

For some young adults, obtaining health insurance could be as easy as getting a full-time job that provides that benefit. Another easy way to get coverage if youre 26 or younger is to be on your parents health policy. And, if you do have to buy your own health insurance, the government has softened the expense via tax credits federal estimates show in 2015 consumers who purchased health insurance through the ACA received an average of $268 per month in tax credits.

But whether going through the ACA marketplace or looking elsewhere, don't make cost the sole shopping criterion. There are other factors to consider. For instance, says health insurance industry expert Sally Poblete, find out if your physicians are "in network" and covered by the plan. Additionally, consider out-of-pocket for prescriptions and office visits and the type of drug benefits you would like included in your plan. As a general rule, the higher your premiums, the more comprehensive the coverage.

Still too confusing? Talk to an insurance agent, suggested Brookfield, Wisconsin, CPA Ralph Bultman: An agent can help explain the different types of health insurance, such as health maintenance organizations, preferred provider organizations and other choices.

Life insurance

The decision to buy life insurance boils down to a simple question: Does anyone depend on your income?

If you have a spouse, child, parent or some other individual who depends on your income or assistance, you probably need life insurance, said San Diego investment advisor Brett Gottlieb.

If life insurance is a go, the next choice is what sort of coverage. Some employers offer a life insurance benefit. If you still need to buy coverage, the decision comes down to whether you want the policy to have a cash value or simply cover a period of time with no cash component (also known as term).

If cost is a consideration, term is less expensive than policies with cash value.

U.S. News & World Report offered a breakdown of issues to consider when deciding between cash value and term coverage.

Disability insurance

If youre single or no one depends on your income, life insurance may be unnecessary. Not so with disability insurance. Estimates hold that one in four of todays 20-year-olds will become disabled sometime before they reach retirement. And that can become a financial issue for a disabled person who can't work for an extended period of time.

If your employer offers disability coverage some 214,000 do, according to the Council for Disability Awareness youre in luck. If not, buy whatever you can afford. Premiums generally run between 1 and 3 percent of annual income, which generally replaces 60 percent of what you earn.

Renters insurance

While homeowners insurance is required to obtain a mortgage, many renters mistakenly assume that their landlord's policy keeps them safe as well. That's one reason why, according to Roomi, a mobile platform that helps people find roommates and shared housing, nationwide only 46 percent of renters have renters insurance.

Make certain youre one of them. The landlord's policy may cover the building, but it doesnt apply to your damaged or stolen belongings.

A solid renters insurance policy is not only affordable the average policy costs only about $180 per year but comprehensive, protecting you from theft and even potential liability issues if the delivery person slips, breaks his leg and sues you for damages. To boost this even further, consider umbrella insurance (see below).

If your rental becomes uninhabitable for any reason, your policy likely offers temporary coverage for living expenses, like hotel bills, temporary rentals, restaurant meals and other expenses, added Catherine Cronenberg, communications manager for Roomi.

Umbrella insurance

This is an often overlooked but valuable and affordable form of protection. Umbrella insurance is essentially liability insurance that provides additional protection that goes beyond other forms of coverage, such as automobile and homeowners.

Umbrella insurance protects you against the mailman suing you for a dog bite or the driver of another car who claims that the accident you were involved in resulted in permanent neck damage.

Moreover, $1 million in coverage costs a couple hundred dollars a year. While the chances that you are held financially liable for another persons injuries are rather slim, you could be blindsided by a massive lawsuit that was completely outside of your control, said Thomas Walsh of the Palisades Hudson Financial Group in Atlanta.

Auto insurance

Every state has a required minimum amount of insurance for all drivers. It can be tempting to go low so far as the price of coverage is concerned if you drive a clunker two miles to work and back but, if your car is new or in reasonably good shape, it's smart to look for as much protection as you can reasonably afford.

While drivers are required to carry insurance to protect the other driver in any accident youre responsible for, youll need extra coverage for damage to your car (provided it's worth insuring) and any injury to you or any passengers, among other issues. General rule of thumb: the newer the car, the greater amount of coverage that's financially justifiable.

Be sure to shop aggressively, said Jennifer Goff of The Zebra, an online insurance shopping website. Rates can vary considerably from one carrier to another, so take the time to compare. Additionally, be sure to ask about any special discounts, such as lower premiums for drivers with particularly safe driving records or discounts for excellent grades in school.
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