This is the seventh post in a multi-part series on how to manage your finances so you can build up your savings, have a safety net, and still live comfortably today without having to live paycheck to paycheck. Click here for part 6, which discusses saving for large purchases.

So why would I write an article on insurance?  The topic certainly doesn’t seem to be a logical component of a sound financial plan.  Or at least, that’s what the 20% of us that are uninsured seem to believe.  But the topic of insurance actually does fall pretty neatly into the larger financial scheme that I’ve been writing about.

In the same way that you use your emergency fund to provide a safety net for unexpected future expenses, you use insurance to protect yourself against catastrophic future events that could destroy your financial stability (in case you haven’t guessed by now, there’s going to be a lot of gloom and doom talk in this post – unfortunately, it’s just the nature of the topic).  Fortunately, as young professionals, our insurance needs are fairly minimal, so we can get by without having to spend a fortune on protecting ourselves against something that could happen.  The list below shows the key types of insurance that you should maintain throughout your early professional career.

1. Health insurance – This is the most important type of insurance you should have.  You may think that paying a monthly premium is too expensive, but I guarantee that a week in the hospital trying to fix the result of a devastating accident will cost you exponentially more.  You keep health insurance to protect you from what you hope will never happen.  A couple of nights in the hospital can run you a huge bill.  A trip to the ER can cost thousands.  A sustained hospital stay can significantly wipe out all of your savings and future earnings.  Don’t take the chance.  What happens if you lose your job or decide to quit?  Look into getting a COBRA policy.  These policies, required by law, allow you to continue your old employer-sponsored health policy for quite a bit of time (upwards of 36 months if you need it).  Of course, you’ll be paying like crazy for it, since you now have to cover your employer’s share of your old insurance bill.  In any case, the point here is simple and direct: insure your health.
2. Short-term and long-term disability insurance – Let me start out with this interesting little statistic: between 20% and 25% of us will be disabled for some amount of time at some point in our careers.  Nearly one-quarter of us won’t be able to keep working.  How will we pay the rent?  What about the utilities?  Gas?  Food?  Unless you have disability insurance, it’s all coming out of that emergency fund of yours, which seems more and more paltry in comparison to your quickly increasing expenses.  You are more likely to be disabled than die before you retire.  Plan for it.  Your workplace may offer disability insurance.  If it doesn’t, go with a private policy.
3. Car insurance – If you have a car, you’re probably required to have car insurance.  It’s pretty much the law for most places that will let you bring a vehicle out onto the road.  With that said, it’s pretty clear that car insurance is not optional, as well it shouldn’t be.  Driving a car is risky.  We all do it, and for the most part we’re fine.  But there’s always a chance that something could happen.  Get car insurance.
4. Home or renter’s insurance – All of your important possessions are most likely in your house or apartment.  Protect them.  You don’t want some freak accident wiping out everything you worked hard to get.  On top of that, you want insurance to cover you in case someone gets injured on your property.  Of course, you’ll also need that insurance to get on your feet once more – you’ll need to find a new place to live, after all.
5. Life insurance – Why did I place life insurance at the end?  Well, chances are, you probably don’t need it.  Unless you have a spouse, kids, or someone else depending on you, life insurance is moot.  If you do have any dependents, however, you’ll need to make sure they’re well taken care of.  If you die, they’re the ones that will suffer when creditors come to loot your estate.  They’ll also need money to keep living.  Make sure your life insurance policy covers any debts you have and can take care of your dependents until they can become financially independent.

This may seem like a lot, but the total monthly cost of all of these types of insurance probably won’t break the bank.  If you need any insurance on top of the ones I just mentioned (such as liability insurance for doctors and lawyers), you’ll have to account for those separately.

Insurance may not be the sexiest topic to talk about when it comes to money, but it still requires some thought and attention.  In the next post, I’ll talk about one of our favorite topics: credit cards.  Read on.