When you add up homeowner’s insurance, health insurance, car insurance, life insurance – that’s five types of insurance – the total tab can easily be more than $10,000 a year. The average person probably pays three or four grand a year just for homeowner’s insurance and car insurance. And that average person is working with an average (gross, take home, pre-tax) income of less than $50,000.
We’re “covered” – but we’re also broke as a result. Maybe the money we throw at insurance could be used more rationally?
Our house is paid for so we don’t have to have home insurance. I have already reduced our coverage to the bare minimum, with the highest deductible available.
It’s still more than $800 annually.
Now, $800 per year (fixed, assuming no increase in the premium over time – which isn’t likely) is $20,000 over 25 years. That’s a big pile of money even before considering the even bigger pile of money I could make by investing that $20k in other things.
But, what about the risk?
Well, there’s not much risk that I can see. We do not live anywhere near water (so zero flood risk). Tornadoes in the mountains? It can happen, I suppose. But it’s also extremely unlikely. It has not happened here in at least 25 years. What else? Fire? I doubt it. My wife and I are home almost all the time. If a fire did start – possible, but not likely – one of us could probably put it out before much damage happened.
Bottom line: I assess our risk of a major/catastrophic loss at almost nil. And the smaller stuff you pay out of pocket anyhow – or should, if you’re smart – because if you don’t, the insurance company will “adjust” your premium right through the proverbial roof.
So why should I spend $20,000 on insurance when I could keep that money, invest that money – and thus, have that money to pay for whatever might come up? The odds of us facing a loss that amounts to more than $20,000 (or even $10,000) during the next two decades is probably slim to none.
Meanwhile, $20k would buy a new top-of-the-line roof and leave $10k left over. Or, I could completely finish our basement and add $50,000 in value to our home. Etc. I could then – if I needed to – draw money from the equity in our house to deal with whatever problem might – again, might – and probably won’t – arise.
Or I could buy at least 2-3 acres of land… something having real value that, if I had to, I could convert into cash very quickly.
I think it’s reasonable to assume the small risk that some catastrophe might happen in exchange for the sure thing of money in my pocket (and available for a rainy day) that hasn’t been pissed away on “coverage” I will likely never need. This is the kind of calculation that many – most? – people just don’t make.
Car insurance is not much different. No, it’s worse - because the car insurance mafia has made their “product” mandatory. Government goons force us to pony up – exactly like mafia thugs who threaten to smash the store windows and “tune up” the owners of restaurants and little shops who don’t pony up for “protection.”
Not only do we pay, we pay through the nose – for a policy that will very likely refuse to do more than cut a depreciated check for the “wholesale used” value of our car if some schmuck T-bones it.
Second personal anecdote:
My sister and her family were vacationing in a ski area of CA. A brand-new Mazda driven too fast by an inept driver on a snow-covered road collided head-on with their 2001 Honda Accord at about 25 MPH. No one was injured but my sister’s Accord received appx. $6,000 in damage to the front end, which of course resulted in this otherwise perfectly good car (before the wreck) being declared a total loss by the insurance co. of the other driver. The accident was without question the other driver’s fault. This was never challenged – and the driver of the Mazda freely admitted responsibility
Nonetheless, the insurance company tried to “settle” for an amount that was literally $2,000 under average current retail value for the Accord based on absolute BS such as (seriously) “dusty engine compartment” and so on. They also would not acknowledge that my sister had very recently (three weeks prior to the wreck) spent $800 on a major tune-up/service and had receipts to back this up.
She spent more than a month threatening to sue – even to the extent of hinting that “personal injury” might become an issue (I know it’s Maggoty but this is what they force people to do – and I recommended she try this; when dealing with gangsters, sometimes it’s necessary to adopt gangster tactics, etc.) before they finally “adjusted” their settlement offer closer to fair market value, but she still ended up with less than what they would have gotten had they sold their Accord on the retail used car market (before the wreck) and without enough money to replace their totaled Accord with an equivalent condition used Accord.
Bottom line: She would have been better off just putting $500 aside for the past 10 years. It would have been exactly the same as the lowball “settlement” the insurance company trotted out – and it would have been a lot less hassle. Had she put that $500 ($5,000 over ten years) into a very conservative investment that returned a profit of 5 percent, she’s have ended up ahead - and never had to deal with the insurance company’s shysters.
I deliberately went without health insurance for most of my 20s, even though I had a full-time salaried job that offered it. I judged that it made more sense for me – a young, healthy adult who didn’t smoke or drink, who exercised regularly, etc. – to skip “coverage” that I almost certainly would never require vs. the sure thing of having some savings – savings I ended up using as a down payment on my first house. Had I been forced to buy insurance instead – as today’s young people will be forced to under Obamacare – there is no way I would have been able to come up with the 10 percent down payment that was required at the time, which would have meant no house for me. Which, in turn, would have lost me all the money I ended up making on the house I bought (the real estate market was still good in those days) and that would have meant I would not have owned my next house outright – paid for with the money I made off the first house.
If I’d spent the money on insurance, I probably would not have a roof (of my own, at least) over my head right now …. but I would have been “covered”’….