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All You Ever Wanted to Know About Insurance

A New College Graduate’s Guide to Insurance

Congratulations! Your child (technically, now an adult) just graduated college and is embarking on the transition into real adult life. For new college graduates, it’s an exciting time filled with many “firsts.” They are starting to hunt for a great job, looking for their first place, and maybe purchasing their first new vehicle. 

In all the transitions, it’s easy to overlook an important detail—insurance. While considering insurance is certainly not as thrilling as those other significant “firsts,” it’s an essential need that they must keep in mind. 

We are sharing this guide to help you advise your new college graduate on what insurance coverages he or she might need. 

#1 – Renter’s Insurance 

Until now, your college grad probably lived in a dorm room or shared housing with other students. Now, it’s time for them to make a home in their first beautiful apartment. 

New renters often don’t understand that the landlord’s insurance does not cover their belongings. Should they experience an unforeseen situation, they need to be protected.

Recent graduates sometimes feel they are invincible. However, here are some scenarios that they need to know could play out:

  • A burglary
  • Stormy weather that causes a leaky roof to destroy their furnishings
  • A small fire that creates smoke damage

Renter’s insurance protects them from losing everything they are working so hard to obtain. 

Tell them to create a spreadsheet and inventory the contents of their apartment, placing an approximate value on their treasures. From electronics to linens and clothing to dishes, every item adds up—and fast if they all need to be replaced! 

The total they reach after surveying all their belongings is the amount of Renter’s Insurance that they should purchase. 

#2 – Auto Insurance

Personal auto insurance is a package policy providing four coverages – liability, medical payments, uninsured and underinsured motorist coverage and physical damage coverage. Your new grads are likely most familiar with liability and physical damage coverage. 

Liability insurance pays when your graduate injures another person or damage their property (such as their car) in an at-fault accident. This protection is required by statute in nearly every US state (only one state gives you the choice to be irresponsibly uninsured). Every state requires your graduate to carry a minimum amount of liability coverage, but don’t let your new professional be fooled by some of the TV ads they have seen over the years. Minimum limits are not nearly enough to protect them following an accident that is their fault. Always advise they purchase higher limits – they will be happy they did. 

Many college graduates reward themselves for their diligent work throughout the past years—and for landing a fantastic job—with the purchase of a new car. And, why not? Purchasing that first brand new car is a significant milestone for a young adult.

Enter physical damage coverage. Physical damage covers the cost to repair the damage to your own car. But don’t be surprised when your premiums go up when compared to the old, hand-me-down you were driving. 

Even if the cost seems scary, don’t let the new grad skimp on coverage – advise them to purchase “gap” coverage. Physical damage coverage is provided on what is known as an actual cash value (ACV) basis. ACV payment might be less than you owe if the vehicle is “totaled” in an accident due to the application of depreciation in the loss settlement. “Gap” protection avoids a potentially large out-of-pocket expense following an accident. 

Remember, liability pays the other person, physical damage is required to cover damages to your car. Both coverages are too important to go with the “minimums.” 

#3 – Liability Insurance

Your grad’s renters’ policy includes liability coverage. It’s tempting for those just starting out to assume that they will not need high amounts of liability coverage and lighten up on this portion of the coverage. 

Liability coverage is the portion of the insurance that protects them from being sued for thousands upon thousands of dollars in the event of an accident-causing bodily injury or even damage to someone else’s stuff.

While they might feel that they are not worthy of a lawsuit at their moderate-income level, slick personal injury attorneys will advise the injured party to get a judgment against your graduate (these can remain in force for 10 years in some states) and swoop in with a wage garnishment once they increase their earnings. 

#4 – Enroll in Employee Benefits

The chances are that your graduate will have the opportunity to enroll in group coverage at their new job. In most cases, they will fare better under a group policy than trying to fly solo and secure their own coverages. 

Take advantage of group rates on the following coverages:

  • Health insurance
  • Dental or vision coverage
  • Disability
  • Life insurance 

These premiums are paid through payroll deductions, taking the sting out of the payment. They may also be eligible to enroll in a Health Savings Account (HSA) that minimizes the financial impact of out-of-pocket medical expenses. 

#5 – Life Insurance

Most college graduates see the standard life insurance included in their employee benefits as sufficient coverage. For many, that could be the case. 

Like every rule, there’s an exception or two to this rule. 

  • Exception #1 – Your young adult has a child who will need to be raised, fed, clothed, and educated in the unlikely situation of his or her premature death.
  • Exception #2 – Your college grad has student loans along with a co-signer. In the event the primary borrower on the student loan passes away, Sallie Mae will call upon that co-signer to pay off the debt. In fact, the debt often becomes immediately due in full in that circumstance. Life insurance protects the co-signer in this case.

The Bottom Line

College graduation is not the end; it’s a fantastic new beginning. Help your college graduate plan for the unforeseen so that he or she can live this time in their life to its fullest.

Still not sure how much coverage your grad needs? Schedule an appointment with one of the agents at Masterpole Murphy —we can offer you the guidance you need.