In this article:
Early in your financial journey, buying insurance may feel like something you can put off until the distant future. But to build a solid financial foundation and protect yourself from life's uncertainties, purchasing some types of insurance should be a priority now. Here are five kinds of insurance you should purchase in your 20s, including health insurance, car insurance and more.
1. Health Insurance
Health insurance helps pay for medical care, such as doctor visits, medication and hospital stays. Many people get it through their jobs. If you're unemployed or your employer doesn't offer health insurance, however, you can buy coverage through Healthcare.gov or your state's Marketplace. You might also qualify for Medicaid, a federal health insurance program for low-income people. Individual plans sold through a health insurance company, insurance broker or insurance agent are another option.
Average Cost
In 2022, people with employer-sponsored health insurance paid an average of $1,327 annually for single coverage and $6,106 for family coverage, the Kaiser Family Foundation (KFF) reports. Income-based premium tax credits and other financial assistance can reduce premiums for Marketplace plans. Generally, plans with lower premiums cover less of your care; plans with higher premiums cover more.
Why You Need It
- Some states fine you for not having health insurance unless you qualify for an exemption.
- Health care can be expensive. An emergency room visit costs an average of $2,453, according to KFF. Without health insurance, you might struggle to pay for emergency care, surgery or a hospital stay—or join the nearly 1 in 10 Americans with significant medical debt.
- Health insurance makes getting preventive care easier, which can stave off health problems.
2. Car Insurance
Auto insurance typically includes four elements:
- Liability insurance covers medical bills and damage to vehicles if you're at fault in an accident.
- Collision and comprehensive insurance cover damage to your vehicle caused by another driver, natural disaster or theft.
- Uninsured/underinsured motorist coverage protects you if the other driver in an accident lacks adequate insurance.
- Personal injury protection pays medical costs for all parties in an accident.
Auto insurance is available from major insurance companies as well as companies specializing in car insurance. You can shop for auto insurance online, by calling insurance companies, or using an insurance agent or broker.
Average Cost
In 2022, the average annual premium for auto insurance was $1,588, according to AAA data. How much you pay for auto insurance depends on your age, what car you drive, your driving history and other factors.
Why You Need It
- During your 20s, you're at greater risk than more experienced drivers. Younger drivers are statistically more likely to be involved in car crashes, according to the Insurance Information Institute, meaning you're more likely to require vehicle repairs or hospital visits for injuries.
- Many states require drivers to have a minimum level of auto insurance or proof of enough financial resources to cover damages without insurance.
- If you have an auto loan, lenders typically require insurance to protect the asset that secures the loan—your car.
- In case of covered damage, insurance pays to repair your car, ensuring reliable transportation. You may not have enough savings or available credit to cover a major car repair or replace a totaled or stolen vehicle. If you cause an accident without insurance, you could be on the hook for hundreds of thousands of dollars or even be sued.
3. Homeowners Insurance
If you own a home, you're likely required to hold homeowners insurance. A standard homeowners insurance policy includes:
- Dwelling coverage to repair or rebuild your home if it's destroyed or damaged by a risk covered in the policy
- Liability coverage for medical costs and damages if someone is injured at your home
- Personal property insurance to replace or repair belongings stolen or damaged by a covered risk
- Additional living expenses coverage to pay for living elsewhere while your home is uninhabitable due to a covered loss.
You can get homeowners insurance from most large insurance carriers, an independent insurance agent or insurance broker, or online insurance marketplaces. Bundling home insurance with other coverage from the same carrier can reduce your premiums.
Average Cost
On average, homeowners insurance costs $1,544 annually, the Insurance Information Institute reports. This cost does fluctuate based on where you live, how old your home is and a variety of other factors.
Why You Need It
- There's no law requiring homeowners insurance, but most mortgage lenders require it so they can recoup their loan if your house is destroyed.
- Most likely, your home is your biggest asset, so it's important to protect it. Without homeowners insurance, you'd have to pay to repair or rebuild your home yourself.
4. Renters Insurance
As a renter, damage to your rental home's physical structure is your landlord's responsibility. But your landlord's insurance doesn't cover your belongings, so if a leaky roof ruins your furniture or a thief steals your TV, you're out of luck.
Renters insurance pays to repair or replace personal property that's stolen, destroyed or damaged by a covered event. Most policies cover property even outside the rental unit—for example, a laptop stolen from your car. Should your home be uninhabitable due to covered damage, renters insurance pays for you to live elsewhere during repairs. If a visitor is injured on the premises, renters insurance protects you from legal liability.
You can get renters insurance from most major insurance companies online, by phone or by visiting insurance marketplaces. Bundling your policy with another policy from the same company may lower your premiums.
Average Cost
Renters insurance averages about $178 per year, Experian data shows.
Why You Need It
- Some landlords require renters insurance as a condition of the rental or lease agreement.
- With renters insurance, you won't have to drain your savings or max out your credit cards to replace your belongings.
- As a renter, you have limited control of your home. Insurance protects you if your landlord fails to maintain the building or a neighbor's actions damage your property.
- Renters insurance protects you if a visitor to your rental unit is injured and sues you.
5. Life Insurance
Life insurance pays a death benefit to your beneficiaries if you die while the policy is in force. Term life insurance, which covers you for up to 30 years, is the most affordable option.
Whatever your age, you need life insurance if your death would leave a spouse, children, parents or dependents in financial difficulty. Working with an independent insurance agent or broker can help you choose the best life insurance for your needs; you can also buy policies from carriers online or by phone.
Average Cost
Cost varies depending on your age, sex, health, coverage and other factors, but life insurance typically costs more as you get older. Premiums for a 30-year, $500,000 term life insurance policy average $30.80 per month for a 20-year-old woman, but $79.87 for a woman of 40, according to Policygenius.
Why You Need It
- Life insurance can cover funeral costs, which average $7,848, according to the National Funeral Directors Association.
- Life insurance can pay off your mortgage or private student loans so surviving family members aren't saddled with debt when you die.
- Since term life insurance premiums stay the same for the life of the policy, buying insurance in your 20s can lock in low rates for up to 30 years.
The Bottom Line
Shopping around for insurance can help you find suitable coverage at a reasonable cost. Improving your credit may help lower your premiums, too. Insurers in some states can check your credit-based insurance score when setting premiums for life, auto and homeowners insurance. Checking your credit report and credit score for free before buying insurance can help you address any problems head-on.