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2 Insurance Products Millennials Need to Buy

April 23, 2015
Personal Finance
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By Rachel Podnos, J.D.

Learn more about Rachel on NerdWallet’s Ask an Advisor

If you’re a millennial, you really should be thinking about buying both disability insurance and personal liability insurance.

These financial products are probably not a top priority for you right now. You also may be leery of being sold an insurance product you’re not sure you need. But you do need them, and here’s why: When you are young, two of the worst things that can happen to you financially are for you to lose your ability to earn an income or to have a significant monetary judgement entered against you. Without retirement savings to fall back on, or a sizable nest egg, financial setbacks like these could prove hard to recover from.

Disability insurance

This insures you in case you suffer a disability that prevents you from working and earning money. I recommend long-term disability insurance for any client who has a steady income and does not have enough saved to last until retirement. If you’re in your 20s, you have a 25% chance of becoming disabled before you retire, according to the government. Disability insurance is a necessity, not a luxury.

Many employers offer group disability insurance policies as an employment benefit. These policies are usually not very expensive, and most will pay you 60% of your salary if you become permanently disabled. If your employer does not offer such a policy, you may be able to get coverage through an organization you belong to. For example, I have a group policy through the National Association of Personal Financial Advisors that will pay me 60% of my salary until age 65 if I become disabled — and it only costs me $20 per month.

If a long-term disability policy is not available through your employer or an association, you can get a private policy through an insurance agent. Private policies are more expensive than group policies, but they often have much better coverage. Also, unlike group policies through employers, they do not end when you leave your job.

Personal liability umbrella insurance policy

I recommend that most people have an umbrella policy with at least $1 million in coverage. This policy “steps in” and covers any damages up to the policy limit beyond what your auto or homeowner’s policy will cover. For example, if your auto insurance will cover $300,000 in damages and there is a judgment against you for $600,000, your umbrella liability policy would step in and pay the remaining $300,000. It may also cover your legal bills up to the liability limit.

“But I have no assets for anyone to take,” you may say. Doesn’t matter. If you cause an injury, a plaintiff can come after your current assets and your future earnings.

A car accident is probably your No. 1 potential liability. In this regard, it is very important for your car to be in your name and, if you are married, for your spouse’s car to be in his or her name. If both cars are in your name and your spouse causes an accident in his or her car, a potential plaintiff could come after any assets owned by either of you or jointly. If, in the same scenario, the car was titled only in your spouse’s name, the potential plaintiff could only come after assets solely owned by your spouse.

The best thing about these policies is that they are relatively cheap. I get mine through my auto insurance provider and it costs me around $300 per year. This is a very small price to pay for major liability protection and peace of mind. Check out these other insurance providers who sell liability coverage.

Being in your 20s is full of uncertainties. But you can give yourself greater financial security if you take these simple steps to insure yourself against disability and liability.