Insurance for college students 101: Basic financial literacy

We build starter packs of insurance for young adults at Surround. And to build them well, we interviewed hundreds of people in their 20s and some of their parents too. We didn’t ask “What kind of insurance do you want to buy?” Turns out, that’s, um, a dud of a question. But when we asked, “What do you worry about?” And “What steps do you take to stay safe?” we learned a lot.

First, young adults are aware of the risks they face. They’ve lived through unsettled economic times and face a miserable job market. They plan their lives to avoid the risks they worry most about, as much as they are able.

Insurance is one tool many of these Millennials and Gen Zers are already using to manage their risk. They are already aware of some of the most important insurance info for their age group. They know they need health insurance, whether they’re on yours or their own. And if they own a car, they know they need to have car insurance. If they own a home, they know they need home insurance. Those who have young children know about life insurance.

But we found that there are things they don’t know, and nobody's out there talking about insurance for college students. And as they get that first job or start to make some money from a business of their own, here are a few things for them to consider. Pass them along to your college kid, and your kid will be ahead of the pack.

1. Long term disability may be the most important coverage your child has never heard of.

Most younger adults know about life insurance. And they think of it as planning for the worst-case scenario, especially for people who have children. However, especially for young single people, the worst financial disaster is an injury or illness that prevents them from ever working again. Social security disability payments are tough to live on. Long term disability fills the gap by providing a portion of their income.

Many larger employers offer long term disability insurance as a benefit. There may be some base level for all employees. Buying up is often quite cheap. Individual coverage is often not expensive for younger people. And long-term disability coverage can often be added to a life insurance policy.

2. Driving uninsured is still driving uninsured, even if they don’t own the car.

Driving a car is the most dangerous thing most of us do. Young adults who have a car know they need car insurance. However, we found dangerous assumptions among the carless who drive.

First, the Millennials and Gen Zers we talked to assume that the owner of the car they are driving is responsible if they get in a car crash. It is true that the owner’s insurance will cover their liability, but there are two serious limitations. First, as many as 1 in 7 vehicle owners don’t have insurance on their vehicle. Yes, they are breaking the law. No, that doesn’t help if you’re driving their car. Second, many car owners, have low liability limits. $15,000 or $20,000 is not a lot if you’re responsible for a severe injury or damage to a fancy car. And if your child is driving, they will be sued for the damages. This includes any amount above the insurance on the vehicle.

Young adults also assume that car insurance is included where it’s not. They often believe that enough insurance is included when they drive a car share platform car for personal use. But, many carshare companies include the most minimal coverage allowed by law. Same problem as borrowing a car, above.

We also heard again and again, “My credit card includes insurance for a rental car.” Most credit cards with insurance benefits coverer damage to the rental car only. They provide no liability coverage. If you think about it, the total cost of damage to the rental car is limited to the value of that car, plus maybe some lost daily rental fees. But the dollar amount your child could be liable for in a crash is much higher. Think medical bills for multiple passengers in a vehicle, or lifetime income for a child disabled in an accident. If young adults don’t buy the rental car company’s (overpriced) liability insurance, they may be driving uninsured.

There are several smart ways to avoid these issues. Avoiding driving unless you’re sure there’s decent insurance is of course a solution. Not always super practical, though. Buying additional insurance when driving a shared vehicle makes sense. So does buying coverage at the rental car counter.

If you drive a lot, though, this can be expensive. A non owner auto insurance policy, also called named non owner, or named non owned car insurance, may be less expensive and worth the peace of mind. It’s liability coverage for people who drive but don’t own a car. Non-owned auto insurance is much less expensive than regular car insurance because there’s no car on the policy. Your insurance agent can help you buy one of these policies.

3. Renters insurance is a must.

Most of the younger people we talked to have heard of renters insurance (aka dorm room insurance if they live on campus). However, most don’t have a policy unless their landlord made them buy one. Renters insurance includes several types of coverage, including liability for accidents that don’t involve a car. The most common type of claim, though, is for personal property. Imagine a fire in your child’s apartment building. Or the sprinkler system going off by accident in their dorm room. Or a vandal breaking in and trashing their apartment. Think about how much they’d have to replace all at once to live comfortably – clothes, electronics, kitchenware, linens, etc. If they couldn’t afford to do that, they should have renters insurance. It’s cheap and lets them avoid an all-too-common financial catastrophe.

4. Business insurance is for their side gig, too.

Many young people have a side gig that may grow into a full-time business. At some point, they should consider business insurance. This is a complex topic that we’ll tread lightly on here, but here’s what they should know: if they have a contract to complete work, or they sell anything, or they invite anyone they are selling something to into their space, or they pay anyone to do work for them, they may have significant liability. There are affordable insurance policies for tiny businesses, home based businesses, and side gigs. Talk to your insurance agent for help.

5. Turns out, there are great jobs in the insurance industry.

There are great jobs in the insurance industry. It’s a fascinating combination of analytical reasoning and human psychology. The world is inherently unfair. And those of us in insurance get to make it a little more fair, by helping people when their chips are down.

In conclusion...

This is such a big ($1.2 trillion!) varied industry as well – there’s every kind of job. There are nurses who help with workers comp claims, and programmers who build models to predict hurricanes, and agents who help customers figure out what insurance they need, and risk management specialists who help companies build safer factories. So, send your kid our way!

For more information, see our guide to insurance for college students.