Insurance for new grads: 5 types of insurance you need as your embark on adulthood

Start your working life off with peace of mind

By Bob Phillips

Updated August 23, 2023

Reviewed By Ross Martin

Edited By Susan Meyer

Table of contents:

Health insurance
Renters insurance
Auto insurance
Disability insurance
Life insurance

If you or someone you know is freshly graduated from college or high school and stepping out in the working world for the first time, it's exciting times. However, along with this newfound freedom comes a new set of responsibilities, including the need to protect oneself from unexpected financial burdens.

Insurance might not be the most glamorous topic, but it's a crucial component of adulting. In this article, we'll explore five types of insurance that new grads should consider to protect themselves and their assets as they embark on their journey into the real world.

Health insurance

Health is wealth. And while it's easy to take your health for granted when you're young, illness and injury can strike at any age. That's why health insurance is at the top of the list for new graduates. Without adequate coverage, medical expenses can quickly spiral out of control. Health insurance ensures that you have access to quality medical care without worrying about exorbitant bills that you might have to spend years paying off.

Most new graduates have a few options for obtaining health insurance:

Employer-sponsored plans: Many employers offer health insurance as part of their benefits package. It's important to carefully review the coverage options, premiums and out-of-pocket expenses (deductibles, copays) to choose a plan that suits your needs.
Individual plans: If your employer doesn't provide health insurance or you're self-employed, you can purchase an individual health insurance plan through the Health Insurance Marketplace or a private insurer. These plans come in various tiers with different levels of coverage and costs. Be prepared to pay substantially more than you will with an employer-sponsored plan.
Parent's plan: In some cases, new graduates may be eligible to stay on their parent's health insurance plan until the age of 26. This can be a cost-effective option, especially if the parent's plan provides comprehensive coverage. However, once the new grad obtains their own permanent coverage, they must be removed from their parent’s plan.

Health insurance may be the most expensive policy you’ll need to buy, but it’s essential for protecting both your long-term physical and financial health.

Renters insurance

For many new graduates, renting an apartment or house is the first step toward independent living. Renters insurance is often overlooked but is a valuable form of protection. It covers your personal belongings in case of theft, fire or other disasters, as well as provides liability coverage in case someone is injured in your rented space. It can even protect items stolen from your car.

Renters insurance is typically affordable, making it a smart investment for safeguarding your belongings and financial well-being. When obtaining renters insurance, take inventory of your possessions and estimate their value to ensure you have adequate coverage.

Auto insurance

If you own a car or plan to buy one, auto insurance is a legal requirement in most states. Auto insurance not only protects your vehicle but also covers you in case of accidents or damage to other people's property.

When shopping for auto insurance, consider the following types of coverage:

Liability coverage: This covers bodily injury and property damage you might cause to others in an accident. It does not pay for any injuries or damage you sustain in an accident.
Collision coverage: This pays for damage to your vehicle in the event of a collision, regardless of who is at fault.
Comprehensive coverage: This covers damage to your vehicle caused by factors other than collisions, such as theft, vandalism or natural disasters.
Uninsured/underinsured motorist coverage: This protects you if you're involved in an accident with a driver who doesn't have sufficient insurance.

The price of car insurance varies by insurer, and sometimes there is a big price difference. Get quotes from multiple insurers to make sure you’re getting the best rate (but don’t skimp on the coverage).

Disability insurance

As a new graduate entering the workforce, your ability to earn an income is your most valuable asset. Much like your overall health, it can be easy to take your ability to work for granted.

Disability insurance provides income protection in case you're unable to work due to a disabling injury or illness. This type of insurance ensures that you can continue to meet your financial obligations even if you can't work for an extended period.

There are two main types of disability insurance:

Short-term disability insurance: This provides coverage for a limited period, usually up to six months, after a waiting period. It's designed to cover temporary disabilities or recovery periods.
Long-term disability insurance: This type of coverage comes into play after the short-term disability period ends. It provides more extended protection and can continue for years or until retirement age, depending on the policy.

Some jobs offer short-term disability coverage as an employer-paid or employer-subsidized benefit. It's definitely worth opting into if yours is one of them.

Savings tips

To save money on disability insurance, consider selecting a longer waiting period before benefits begin (90 days) and a shorter benefit period (5 years), which will cover the length of most periods of disability.

Life insurance

You're young. You're invincible. You have no dependents. So why do you need life insurance? Well, actually, if you can swing it, life insurance can be a good investment at any age. Life insurance ensures that your loved ones are protected financially in case of your untimely death.

There are two primary types of life insurance:

Term life insurance: This is a straightforward and affordable option that provides coverage for a specific term, such as 10, 20 or 30 years. It's an excellent choice if you want coverage during high-debt periods, such as paying off student loans or a mortgage.
Whole life insurance: This type of policy provides coverage for your entire life and includes a savings component that builds cash value over time. While more expensive than term life insurance, it offers lifelong protection and a way to accumulate savings.

If budget is your major concern when buying life insurance, consider buying inexpensive term life coverage. Depending on the policy, you change over to a whole life policy when you get better established financially.

Wrapping up

As you are starting your first job and learning budgeting and living on your own, it can be easy to overlook things like insurance. But the right insurance coverage is an essential step toward financial stability and peace of mind.

From health insurance to life insurance, each type of coverage serves a unique purpose in protecting your physical and financial well-being. By taking the time to research and understand your insurance options, you can make informed decisions that set you up for a secure and successful future. Remember, insurance might not be the most exciting aspect of adulthood, but it's a responsible and necessary one.