← Money Basics After High School · about 45 min
Insurance
Paying a little every month so one bad day doesn't wreck you.
Why insurance exists
Most years, nothing big happens. But a car crash or a hospital stay can cost tens of thousands of dollars. Insurance lets lots of people each pay a small, predictable amount so the few who have a disaster get covered.
You're trading a small, certain cost (the premium) for protection from a huge, uncertain one.
The five words on every plan
- Premium
- What you pay every month just to have the insurance, whether you use it or not.
- Deductible
- What you pay for care each year before the insurance starts paying its share.
- Copay
- A flat fee for a visit or prescription, like $30 to see a doctor.
- Coinsurance
- After the deductible, you pay a percent of each bill (like 20%) and the plan pays the rest.
- Out-of-pocket maximum
- The most you'll pay for covered care in a year. After that, the plan pays 100%. Premiums don't count toward it.
Worked example: which plan is cheaper?
Plan A: $250/month premium, $5,000 deductible, 20% coinsurance, $7,500 out-of-pocket max. Plan B: $450/month, $1,000 deductible, 20%, $4,000 max. You break your arm: $3,000 in bills.
- Plan A premiums
$250 × 12 = $3,000 - Plan A: the $3,000 bill is under the deductible, so you pay all of it
$3,000 - Plan A total
$3,000 + $3,000 = $6,000 - Plan B premiums
$450 × 12 = $5,400 - Plan B: deductible, then 20% of the rest
$1,000 + 0.20 × ($3,000 − $1,000) = $1,400 - Plan B total
$5,400 + $1,400 = $6,800
Plan A is $800 cheaper in a broken-arm year. But with $50,000 in bills, Plan A costs $10,500 and Plan B costs $9,400. The "best" plan depends on how healthy you expect to be and how much cash you could cover in a bad year.
Compare plans
Deductible vs. premium: which plan costs less?
| Medical bills | Plan A | Plan B |
|---|
Simplified: copays and drug costs are left out. Your total = 12 premiums + what you pay toward bills (never more than the out-of-pocket max).
Four kinds you'll meet
| Type | What it covers | Do you need it? |
|---|---|---|
| Health | Doctor visits, hospital, prescriptions | Yes. You can usually stay on a parent's plan until age 26, even if you're married, not living with them, or not in school. |
| Auto | Liability (damage you cause to others) is required by law in almost every state; collision and comprehensive cover your own car | Yes, if you drive. Full coverage averages about $1,694 a year (2025 study (full coverage)); young drivers usually pay more. |
| Renters | Your stuff (theft, fire, water from a burst pipe) plus liability if someone gets hurt at your place. It does NOT cover the building; that's the landlord's insurance. Floods and earthquakes usually need separate coverage. | Yes, if you rent. It often costs about the same as a streaming subscription. |
| Life | Pays money to people who depend on your income if you die | Usually not until someone depends on you (a partner, kids). Then term life is the simple, cheap kind. |
Practice
Your plan has a $1,000 deductible and 20% coinsurance. You get a $3,000 bill. What do you pay?
Show answer
$1,000 + 20% × $2,000 = $1,000 + $400 = $1,400.
Same plan with a $4,000 out-of-pocket max. You have $50,000 in bills. What do you pay toward the bills?
Show answer
$1,000 + 20% × $49,000 = $10,800, but the max caps it at $4,000.
Renters insurance costs $15 a month. Your laptop, phone, clothes, and furniture are worth $4,000. Is it worth it?
Show answer
$15 × 12 = $180 a year to protect $4,000 of stuff (plus liability). For most renters, yes.
You're 22 and just graduated. Your parent has health insurance through work. Can you stay on it?
Show answer
Yes, plans that cover dependents must let you stay until 26.
Your apartment building's roof leaks and ruins the ceiling and your couch. Who covers what?
Show answer
The landlord's insurance covers the building (the ceiling). Your renters insurance covers your couch.
Can you…
Sources and dates
- HealthCare.gov: Coverage for children under 26 · as of Oct 2026
- AAA: Your Driving Costs 2025 · as of 2025 study (full coverage)