As parents, the moment your child leaves the nest is a significant milestone in life. This transition can be accompanied by a mix of emotions, one of which may be worry. You may ask yourself, “Did I prepare them enough for life’s trials and tribulations?”
While it is hard to know the answer to that question, one thing you can do is continue to financially support them while they establish their financial independence. We talked about some ways to accomplish this in a previous article about gifting to adult children; however, you have other ways to support them. In this blog post, we will discuss how you can provide insurance for an adult dependent child, with health insurance being the most notable and expensive.
Understanding Health Plans for Adult Children
Health insurance plans typically cover dependent children until the age of 26. This provision, mandated by the Affordable Care Act (ACA), helps ensure that young adults have access to necessary healthcare coverage as they transition into financial independence. There are crucial details to be aware of depending on the type of health insurance you have.
Employer-Sponsored Health Insurance:
· Many young adults can stay on their parents’ health insurance through employer-sponsored plans until the age of 26, as long as the parents maintain a policy that covers their family.
· Typically, employer-sponsored plans will cease to cover a young adult on the day or month they turn 26. This applies to married and unmarried children.
· Depending on which state you live in, your adult child may be able to stay on your employer-sponsored plan past age 26. This provision usually applies if they suffered a disability or are unable to achieve financial independence.
· Employers must offer dependent coverage, making this a viable option for many families.
Marketplace Health Insurance:
· Many young adults can stay on their parents’ health insurance through the ACA Marketplace plans until age 26, as long as the parents maintain a policy covering their family.
· A young adult can remain on their parents’ ACA plan through December 31 of the year they turn 26.
· A special enrollment period enables young adults to apply for a marketplace plan between 60 days before and after they lose coverage.
· If employer-sponsored coverage is not available or practical, young adults can explore individual health insurance plans in the marketplace.
· The individual market provides a range of options to suit different needs and budgets.
Key Considerations for Parents
You will want to be mindful of open enrollment periods to prevent a coverage gap. For example, if your child turns 26 in February and their new job has open enrollment in December, they have a potential coverage gap for the majority of the year. It is crucial to know the open enrollment periods for you and your adult child and plan accordingly.
It is also important to communicate with your child and understand their financial situation to determine the most suitable insurance option. Factors such as income, employment status, and overall financial independence should help guide your decision.
For example, your child might have a harder time staying afloat financially in their earlier years if they are self-employed since they typically need to pay for their own health insurance. A young adult with an employer-sponsored plan may not have to worry about the cost of health insurance as much, with their employer contributing to the cost.
Finally, don’t forget to take into consideration your financial well-being. It is essential to make sure that you are not putting yourself at risk while helping your children. We can use the analogy of when you fly on an airplane, the flight attendant instructs you to “put your oxygen mask on first” before helping others.
Some health insurance policies have higher premiums and deductibles when more family members are included on them. Some tax breaks are involved with helping dependent children, which can alleviate some of the financial burden.
For example, parents can continue to claim their child as a dependent on their tax return until the age of 26. Adult children can be claimed even if they’re not living at home as long as they’re attending college, serving in the military, starting a business, receiving medical care, or vacationing.
Other Insurance to Consider
Health insurance is usually the most expensive and crucial insurance for young adults, but they will also need other types of insurance. Plans such as auto and renters insurance can be used as a stepping stone to help adult children understand how insurance works and promote good habits for paying bills on time.
Auto Insurance:
If your child owns a vehicle, you will want to make sure they have appropriate auto insurance coverage. Rates may vary based on factors like age, location, driving record, and the type of vehicle. Many insurers provide discounts for good grades, which can be an incentive if your child has recently left the home to pursue higher education. If your child is still using your home as their permanent residence, they can be maintained on your insurance policy until you are ready to transition it to them.
Homeowners and Renters Insurance:
If your child lives independently, they should consider securing renters insurance to protect their belongings. Since many adult children get renters insurance soon after leaving home, this is a good opportunity to teach them about certain types of coverage and terms they’ll encounter, like personal liability coverage. Homeowners insurance may be necessary if they own a home; however, that is less common for young adults who just left their parents’ home.
Conclusion
Insurance for your adult dependent child as they leave the house involves thoughtful planning and consideration of various factors. Whether they stay on your health insurance plan, explore individual market options, or transition to employer-sponsored coverage, understanding the available choices helps ensure that their healthcare needs are met as they embrace financial independence.
Additionally, addressing other insurance coverage such as auto, homeowners, or renters insurance adds another layer of protection, contributing to a well-rounded approach to their overall well-being.
Communicating and planning with your adult child about these insurance types early can help support their lasting financial independence.