March 15, 2005

COLLEGE STATION – The bags and boxes are packed and in the car, and the first month's rent is paid on a brand-new apartment. Parents stand misty-eyed on the curb waving good-bye.

Life and all its possibilities beckon to young adults leaving home for the first time.

But after all the excitement and anticipation dies down a little, young adults need to face some practicalities of living on their own, said a Texas Cooperative Extension expert.

One of those practicalities is insurance, said Dr. Joyce Cavanagh, Extension family economics specialist.

College students living away from home might be covered under their parents' health insurance policies, Cavanagh said, then added, "If their parents have health insurance!"

But not necessarily.

"If they are still a dependent, basically living at home and still claimed by their parents as dependents (on income tax forms), they may still be covered under their parents' insurance," she said. "But they need to clarify that before moving off to college."

Some colleges and universities provide a limited amount of health care for students, Cavanagh said, and that needs to be investigated too.

Insurance sometimes comes with a job. When interviewing, Cavanagh said, young adults need to ask about employee benefits.

"Ask about benefits such as health insurance, disability insurance and retirement accounts."

Retirement accounts? Absolutely, she said.

"All you have to do is look at the headlines," she said. Social Security is likely to be very different when today's young adults are retirement age and was never meant to be the only source of retirement income. That's why young adults should ask any potential employer about retirement accounts such as 401(k)s.

For extra assurance, "consider getting a retirement account – an IRA – that you can get yourself," she added.

Saving for retirement is easier when it's started at a young age, Cavanagh said. That way smaller portions of a paycheck can be set aside for longer periods of time, making less of an impact on the salary. Waiting to start saving means, in order to have enough to live on during retirement, larger amounts must be set aside from each paycheck.

Health insurance is also a necessity for young adults, even those who have no known medical problems, Cavanagh said. Anyone can be hit with large unexpected medical expenses at any time, she said. All it takes is one accident or one serious illness.

If a potential employer doesn't offer employee health benefits or a parent's health plan doesn't cover college-age children, young adults need to look into buying policies of their own, she said.

Check what plans are available from well-known health insurance companies, such as Blue Cross/Blue Shield, or consider joining a local Health Maintenance Organization as an individual member, she advised.

And when it comes to these individually-owned health insurance policies, the best motto is: Don't sweat the small stuff. In other words, Cavanagh said, consider health care policies which have large deductibles and will cover catastrophic illnesses, and then pay out of pocket for regular doctor visits and routine care.

These kinds of health care policies are less expensive because of the large deductibles, she said, but can be a financial life-saver in the event of a serious medical event.

"Don't think because you are young and healthy you won't need it, because you might."

These potential serious medical events are also why disability insurance is so important, Cavanagh said.

"Disability insurance covers your income, so if you are unable to work it will pay you up to a certain percent of your salary," she said. "It will give you something to live on in case you can't work."

And that includes any injury or disability that occurs before a worker is old enough – or has worked enough time – to qualify for Social Security disability benefits.

"Disability (insurance) is typically not expensive," she said, "and it insures against large economic loss."

When it comes to auto insurance, "once you are out on your own, your parents' insurance is (probably) not going to cover you any more," Cavanagh said. "You need to check on that."

In some instances, if the young adult is driving a car owned by his or her parents, their auto insurance policy may continue to cover that expense. However, premiums for those under age 25 can be high.

That's not the case for renter's insurance. This inexpensive insurance covers personal property in a rented dwelling. Cavanagh advised young adults living on their own to get renter's insurance. College students should check to see if their personal belongings will be covered under their parents' homeowners policy. If something happens to the dwelling – a fire, for example – the property owner's insurance will cover the structure. But the renters without insurance on personal property may be left with nothing.

The bottom line, she said, is: "If you're old enough to live on your own, you're old enough to cover your own insurance costs."

And that's part of growing up too, she said.