Early Career Insurance Basics

When you’re young you’re likely as healthy as you’ll ever be.  The chances of death or disability seem remote because they generally are remote.

So, why consider buying insurance early in your career?  There are several reasons.

First, if you’ve joined the full-time workforce you do have someone to protect:  you.

Not with life insurance but with disability insurance.

If You Work, You Need to Protect Your Paycheck

Why do you need disability insurance?  Because if you’re like most Americans, everything you buy is derived from your paycheck.  The chances of you becoming disabled long enough for it to materially and negatively hurt you financially is real.  Disability insurance protects you by providing income when you cannot generate income–at least until you can return to work.

Disability Causes

DIY Emergency Fund (to cover short term disabilities)

If you have an emergency fund (we recommend having one that covers 3-6 months of household expenses), all you may need is long term disability insurance.  You would buy it directly (not through your employer), you’d pay the premiums (so the benefits, if needed, are tax-free), you could design it to meet your customized needs, and it would be portable (you could take it from job to job).

Lock In Lower Cost

Disability insurance is least expensive when you’re young (so you can lock in a lower rate if you buy it at a younger age) and you’ll need it for as long as you work, which could be the next 40-50 years.  So, it’s not going to waste.

But, What Are The Odds . . .

The chances of your becoming disabled are larger than dying at every age.  1 in 3 Americans ages 35-65 become disabled for more than 90 days.  The chance of a 35 year old dying by age 65 is 1 in 5 for men, 1 in 10 for women, according to the Social Security Administration.

Let’s Call It “Paycheck Insurance”

It’s called disability insurance but it really works as paycheck insurance.  In fact, if the insurance industry called it “paycheck insurance” (why don’t they ? ? ?), they’d probably sell a lot more of it.

Life Insurance:  If It’s Not For You (Yet), Don’t Buy It

There’s something clear cut about life insurance:  it’s very clear when benefits are triggered.

That means life insurance is not for you.  It’s for those you love.

If you’re using life insurance to protect others (exclusively for the death benefit) and don’t have anyone financially dependent on you, then there’s little reason to buy it now.  Sure, you could get a policy in anticipation of getting married, starting a family, etc. but those are big “ifs”.  Also, life insurance is less expensive than you think so you likely (depending upon your health) can get it later when and if you need it.

Other Uses of Life Insurance

There are other uses of life insurance, such as to fund business buy-sell agreements (you may also use lump sum payout disability insurance) or for cash accumulation.

Designing Insurance

There are hundreds of insurance companies, each with different products, numerous optional features, and nearly unlimited design strategies one can use to custom-design a disability or life insurance policy.  That’s probably too many possibilities for the nonfinancial professional to get right on the first try.

So, unless you know you need term life insurance (the simplest type of life insurance) and know what you need, you might want to consult a financial professional to get the fit you need.  Getting buying help can help you buy it right and insurance premiums are state-regulated so whether you buy it yourself or through an agent, you’ll pay the exact same premium.

Read about types of life insurance