While the enactment of the Affordable Health Act helped close the health insurance gap for young adults (under age 26) because it allows them to remain on their parents’ policies, there is still a critical gap leaving their families at risk: being uninsured for life and disability insurance.
Life insurance can provide a lump sum cash benefit when an insured individual dies, whereas disability insurance pays monthly benefits to replace an insured’s income during a disability.
It is important to consider the uninsured status of young adults relating to life and disability insurance; their risks of death and disability; and the potential financial consequences if they remain uninsured.
Uninsured Status of Young Adults
According to recent studies by leading providers in the life and disability insurance marketplace:
- Half of young adults (Gen Yers ages 21 to 31) admit they are very concerned about their family’s financial security and are living paycheck to paycheck. However, only about half have any of their income protected with disability insurance according to a MetLife survey in 2012.
- Only 13 percent of young males ages 18 to 24 and 25 percent of those ages 25 to 34 have individual life insurance. For women the numbers are slightly higher, 20 percent and 26 percent, respectively according to a 2011 trends study by LIMRA.
This lack of life and disability insurance would not be troubling if the mantra, “I’m young and healthy, nothing will happen to me” many young adults believe were actually true.
Risk of Death and Disability
These statistics show that young adults are not so invincible:
- Despite the fact that on average, young adults are relatively healthy, there is a high probability they will have to deal with a work-stopping injury. A 20-year-old has about a one in four chance of becoming disabled before reaching retirement and females are more likely to become disabled than males: See Figure 1.
- More than one third of young adults die as a result of an injury-related accident every year. They also have the highest rate of injury-related visits to the emergency room, too. See Figure 2. Overall, males are more likely to die from an accident—they account for approximately 64 percent of all accidental deaths each year according to the 2012 National Safety Council Injury Facts.
Financial Consequences of Remaining Uninsured
If young adults remain uninsured for life and disability insurance, they and/or their parents could be vulnerable to these potentially catastrophic expenses in the event of a serious illness, injury and even death:
Student and other loans. While federal student loans are canceled upon death, private loans are not. Private loans usually have a clause requiring full payment immediately upon the death of the borrower. If the borrower is unable to pay the loan, the lender will go after the cosigner to repay the remaining principal.
This may be a concern for the nearly 66 percent of bachelor’s degree recipients (and their parents/cosigners) who borrow money for college. Their average debt is $23,300 with 10 percent of graduates owing more than $54,000 and 3 percent owing more than $100,000, according to the May 12, 2012 NYTimes.com article on ‘Degrees of Debt.’ See Figure 3. (Note: These figures do not include graduate school loans.)
Medical expenses. Basic health insurance plans are designed to cover a large portion of medical bills. However, there are usually copays, deductibles and cost-shares passed on to families that could be expensive if there are lengthy hospital stays, multiple surgeries and specialists involved in the care.
Funeral and burials costs. Although no one wants to think about it, planning a funeral for a young adult can be expensive. The average family spends close to $10,000 for funeral and burial services according to statistics at Funeral-Tips.com.
It is understandable that purchasing life and disability insurance is not a top priority for recent graduates. Seeking independence, finding suitable jobs and starting their careers are higher priorities. However, if their parents or other family members have cosigned for thousands of dollars in student loans and do not have enough liquid assets to pay for medical and funeral costs—let alone daily living expenses for a disabled young adult—life and disability insurance should be a priority. Both can be relatively easy to obtain on a healthy young adult and are affordable.
For example based on recent Internet quotes, a healthy 24-year old nonsmoking male can obtain a $100,000 term life insurance policy for about $100 a year (quoted 12/2012 on Intelliquote.com) and purchase a $3,000 monthly benefit long-term disability benefit for an average of $64 a month (based on a 12/2012 average of various occupational quotes at www.disabilityquotes.com). Combined, this represents a small price to pay for financial peace of mind for young adults and their families.