Kuro5hin.org: technology and culture, from the trenches
create account | help/FAQ | contact | links | search | IRC | site news
[ Everything | Diaries | Technology | Science | Culture | Politics | Media | News | Internet | Op-Ed | Fiction | Meta | MLP ]
We need your support: buy an ad | premium membership

Don't buy insurance you don't need!

By Delirium in Op-Ed
Wed May 31, 2006 at 07:11:31 AM EST
Tags: finance, insurance (all tags)

That claim, that you shouldn't buy insurance you don't need, sounds pretty obvious, but I've found that a pretty straightforward definition of don't need leads to quite different advice than most people seem to follow. Perhaps it is indeed obvious, but I've found more people willing to argue with me than I would've thought, so here's my take on when you should buy insurance, how to size deductibles, and so on.

Buying insurance is paying somebody to take on some risk that would otherwise be yours. Consider homeowners' insurance. You pay the insurer the average expected cost of damage to your home, as estimated by their actuaries, plus some overhead and profit. In return, the insurer will cover the actual cost of any damage that is incurred. In the average case you come out somewhat behind due to the overhead and profit ("insurance tax"), but in return there's now a cap on the most out-of-pocket expense you could suffer in the worst case.

This is often a pretty good trade-off—there's a pretty good chance your house won't burn down, and you'll end up a little poorer than you would've otherwise, but at least if it does, you aren't left without a house.

Now a common aspect of insurance of nearly all sorts is a deductible: You agree to pay the first $x of any damage, and the insurer only covers amounts past that. This is to keep the whole process from being woefully inefficient: Ideally, your deductible should be higher than routine expenses, or else you're paying routine expenses indirectly via the insurer. This increases the insurer's overhead, since instead of insuring you from catastrophes they're also acting as your routine payment agent, and therefore they charge you even more of the insurance tax, which you shouldn't be paying anyway on routine expenses.

In fact, it's usually a good idea to have a fairly high deductible on most types of insurance; the higher the deductible, the fewer expenses that you perfectly well could've paid for yourself are subject to the insurance tax, and the less of a hassle the insurance company sees you as and charges you for, since $200 claims come up much more frequently than, say, $2000 claims. Low deductibles are basically buying insurance you don't need—if you can pay for $1000 of hailstorm damage yourself, don't pay an insurance company more than that to cover it for you. Otherwise, insurance just serves as a roundabout way of getting your own money back after some of it's kept by the insurer.

An exception is if you know that for some reason you're more likely to use the insurance than the price it's selling for reflects.

More likely, if you're the sort of person who is competent at anything at all, your risk in many cases is lower than priced: There are a lot of reckless drivers, hypochondriacs who visit the doctor twice a week, and so on. This is exacerbated by the fact that insurance acts as a moral hazard—if insurance is picking up the bill, people waste money on things they otherwise may not have paid for, so if you're the sort of person who doesn't do that, you don't want to be subsidizing them. (Incidentally, the fact that having a low deductible increases moral hazard by removing the client's financial stake in the affair is another reason insurance companies charge people with low deductibles disproportionately more.)

Car insurance is a canonical example: If you're under 25, and don't drive like a complete idiot, you're probably priced as a higher risk than is really justified, because most people under 25 are apparently either reckless or incompetent or both, and the insurance companies don't have good ways of distinguishing. This argues for raising your deductible as high as the law and your savings allow. For example, a few years ago I raised my collision deductible from $500 to $1000. This saves me $200/year, which means that it was priced such that I was expected to have an $1000+ accident every 2.5 years. Obviously that's a ridiculous over-estimate, and over the five years since I've done that, I've saved $1000 in premiums—enough so that even if I now totalled two cars in a row, paying the $500 extra deductible each time, I would still break even.

Related to but even worse than buying insurance with an unnecessarily low deductible is buying insurance on something too cheap to be worth insuring at all. Almost all "extended warranty" plans fall into this category. Manufacturers are obviously going to want to at least break even on selling warranties, so they charge you at least the expected failure rate times the product price; in most cases, they charge much, much more, which is why they're so aggressive in trying to sell them to you. (I should note that some service/repair plans don't fall into this category. In those cases, you're paying for the convenience of not having to go through the hassle of fixing/replacing something yourself if it breaks, not just insuring the product. Whether those are worth it depends on how highly you value saving that hassle.)

As a final caveat, note that this all applies only if you're actually buying insurance. If, say, your employer is paying for your health insurance (or a significant percentage of it), that's just your employer paying (some of) your health costs, using the insurance company as the middleman by which to do so, which is a completely different situation. In fact that may be the source of much of the confusion: People seem to think an insurance plan covering routine expenses with a very low deductible is a good thing, which it is in the case where you're not the one paying the insurance premiums (but only in that case). If you're buying your own health insurance, the above advice applies, but to an even greater extent than with most types of insurance, because people with high-deductible health insurance (over $1050 for individuals or $2100 for families) qualify for health savings accounts, tax-exempt savings accounts that can be used to pay health expenses up to the deductible (or $2700, whichever is lower), which is basically like the federal government paying 15-35% of your deductible, depending on your tax bracket.

So, in summary:

  • Insurance is a means by which you pay someone to take on risk for you.
  • In return for taking on the risk, insurance companies charge you the overhead of administering the insurance program plus a profit.
  • Therefore, you should only use buy insurance when you actually need someone to take on some risk for you, and it's worth paying the overhead. Don't pay someone to take on minimal amounts of risk, and don't use insurance companies as an indirect and expensive way of paying routine expenses.
  • Default deductibles on most types of insurance are much lower than is cost-effective. Save the money on premiums and stick it in a bank account to "self-insure" for relatively minor things.
  • In particular, look for places where the implicit estimate of risk is considerably higher than seems reasonable, and increase your deductibles until the premium/deductible tradeoff looks better.

(This is part of an informal series of personal finance articles I've written here; previous articles cover credit cards and online savings accounts. An earlier version of this op-ed also appeared on a personal finance site I maintain.)


Voxel dot net
o Managed Hosting
o VoxCAST Content Delivery
o Raw Infrastructure


Related Links
o moral hazard
o health savings accounts
o credit cards
o online savings accounts
o personal finance site
o Also by Delirium

Display: Sort:
Don't buy insurance you don't need! | 53 comments (43 topical, 10 editorial, 0 hidden)
Health care (3.00 / 7) (#1)
by cdguru on Mon May 29, 2006 at 11:23:29 PM EST

It is probably worth noting that health insurance used to be risk-based in the US - if you were young and healthy you paid less than older, sicker people.  This is no longer the case.

Health insurance in the US is sort of a financing plan now.  The insurance companies are legally prevented from using most risk assessments to determine what you are paying.  They know within a few dollars what they are going to have to pay out every year, so they need to bring in that much.  Where it used to be risk-based it is now just a division operation depending on what plan you select and how much the expected payout will be for all of the people in that plan.

Today you have the choice to particpate in a plan or not and your cost is related to the plan coverage.  Expect this to change in the future.  The lack of a risk basis for health insurance means you are paying the same as someone with AIDS for which the payout will be much higher.  Since we are charging the same for the plan to all participants, you know what happens to the cost per particpant.

When, and I do mean when, particpation becomes coerced, such as a government-financed "single payer" plan or simply government health coverage, there will no longer be millions of people that are not covered.  However, there will be far fewer plans and the plan you are in will have a lot more older, sicker people in it.  This means then end of "cheap" plans.  Will you be able to afford it?

god forbid (2.40 / 5) (#16)
by mfeltman on Tue May 30, 2006 at 01:51:45 PM EST

society at large should bear the burden of our elder population.  Clearly the free market and the invisible hand will provide.


[ Parent ]
if we decide to provide, it should be explicit (3.00 / 5) (#17)
by Delirium on Tue May 30, 2006 at 02:28:21 PM EST

What I don't like about some of these schemes is that they're roundabout and try to hide what's going on. If we as a society decide that the elderly should be subsidized by the younger, then we should do it explicitly and directly, not by trying to bury it in some insurance scheme without telling anyone what we're doing.

[ Parent ]
conceptually different (none / 1) (#21)
by guidoreichstadter on Tue May 30, 2006 at 05:58:19 PM EST

If the us moved to a single payer system, presumably it could be financed through corporate income tax, sales tax, deficit spending, personal income tax, profits from state owned industries (are there any profitable stated owned industries in the us?) or any other revenue mechanism.

Conceptually, how much the marginal burden shifts and to whom depends on the way the expense is financed, and this changes continuously based on the economic activity of those subgroups under current finacing mechanisms. Even if the marginal change in the tax burden shifts towards a younger population, subgroups of the younger population will almost certainly see their maginal burden lifted onto older subgroups under any likely financing scheme. Obviously, the societal choice to move to a single payer system isn't equivalent to the choice that "the elderly be subsidized by the younger." Making the one choice doesn't imply that you are hiding the decision to make the second choice.

you are human:
no masters,
no slaves.
[ Parent ]

I'd prefer it kept as non-distorting as possible (3.00 / 3) (#22)
by Delirium on Tue May 30, 2006 at 06:22:17 PM EST

Financing health-care through general taxes ends up being distorting by taxing a complex set of unrelated things to pay for it, and as you say, it ends up being very implicit and hard to figure out who is paying for what.

Instead I'd prefer a specific tax to pay for the health-care system, which we can then make explicit decisions about. Think the rich should subsidize the poor? Then make the health-care tax progressive. Think some element of risk should be included? Then charge smokers (or other such risk categories) a higher tax rate. Etc.

[ Parent ]

i agree with this (none / 1) (#23)
by guidoreichstadter on Tue May 30, 2006 at 08:03:10 PM EST

is there any reason why health care should be different in this respect from any other government expenditure?

you are human:
no masters,
no slaves.
[ Parent ]
not particularly, no (2.00 / 2) (#24)
by Delirium on Tue May 30, 2006 at 08:04:11 PM EST

I don't really like the "huge pot of money" approach in general.

[ Parent ]
there are very significant political implications (none / 1) (#25)
by guidoreichstadter on Tue May 30, 2006 at 08:06:45 PM EST

to this idea

you are human:
no masters,
no slaves.
[ Parent ]
indeed (none / 1) (#26)
by Delirium on Tue May 30, 2006 at 08:13:53 PM EST

I think it would reduce spending on things people didn't actually want to pay for if it were separately itemized. Want to pay for a $200m bridge to nowhere in Alaska? Sure, but we'll have to raise road-construction taxes next year to pay for it. Want a huge medicare plan to buy prescription drugs for senior citizens? Well, then your health-care taxes are going up by 20% next year. Etc.

[ Parent ]
Couldn't you just look at the budget? (none / 0) (#37)
by DrToast on Wed May 31, 2006 at 09:03:25 PM EST


[ Parent ]
in Australia (none / 1) (#39)
by danny on Thu Jun 01, 2006 at 12:47:29 AM EST

In Australia, there's a separate Medicare Levy added onto normal income taxes.  This is a flat 1.5%, so it's not at all progressive (unlike the income tax system, which is).  

In addition that that, anyone with a taxable income over $50,000 who doesn't have private health insurance is whacked with additional 1% Medicare Levy surcharge.  (And yes, this means that someone with a salary of $49,990 effectively earns more than someone on $50,010.)  There are various minimalist private health insurance plans designed for people who just want to avoid the surcharge.

[900 book reviews and other stuff]
[ Parent ]

charging smokers more (none / 0) (#53)
by zenofchai on Fri Jul 28, 2006 at 02:37:59 PM EST

and how, pray tell, do you identify "smokers" so that you can charge them a different rate?
The K5 Interactive Political Compass SVG Graph
[ Parent ]
self-identification (none / 0) (#54)
by Delirium on Fri Jul 28, 2006 at 03:06:30 PM EST

In the interests of not being overly intrusive with monitoring, I'd stick to self-identification under penalty of perjury and loss of coverage. Obviously some people will cheat, but hopefully the threat will deter many.

It's also possible that drug tests could pick up nicotine.

[ Parent ]

so... (none / 0) (#55)
by zenofchai on Fri Jul 28, 2006 at 03:09:00 PM EST

self-identification, especially for smoking, rarely works. on the one hand, you can make the penalty quite severe in a effort to deter, but on the other hand, how does your drug test differentiate between a casual smoker and someone who works in a smoky bar but doesn't smoke?
The K5 Interactive Political Compass SVG Graph
[ Parent ]
god forbid (none / 1) (#38)
by freakazoid on Wed May 31, 2006 at 09:32:29 PM EST

...anyone should be encouraged/expected to save up money to take care of themselves!

[ Parent ]
You're missing the point of insurance. (3.00 / 2) (#44)
by syncrotic on Thu Jun 01, 2006 at 07:01:42 PM EST

Medical expenses, liability for an auto accident, or a house fire are the sort of events that are well beyond the ability of most people to afford on their own. So some smart people decided that they'd pool their money, and in so doing, they'd all be covered in the event that disaster strikes for a few of them. They pay a little for the security of knowing that the unforseen will not leave them homeless and penniless.

So that's the basic principle of insurance. Some people in this group are obviously a little bit upset that, being young and healthy, they're subsidizing old people, AIDS patients, cancer patients, little Johnny with the horrible birth defects, etc. They'd rather divide the pool into a few categories: say, by age.

So you have the young people and the old people, and the former pay less. Then they decide that they'd really rather not cover all the expenses that arise from people being overweight. So they split the pool again, into young thin people and young fat ones. Then they decide to split the pool again...

Eventually they become a pool of young thin people with two living parents, no dangerous hobbies, safe occupations, no genetic predispositions to disease, and green eyes.

The bottom line is that if you're splitting the risk pool, it's hardly fit to call it insurance anymore. A few people get to pay almost nothing, because almost nothing will ever go wrong with them. The rest pay more, in proportion to the likelihood of bad things happening to them. The fat people over 65 with no living relatives, bad genetics, and blue collar jobs would pay nearly as much as if they'd just forego the insurance and pay out of pocket for everything.

The whole POINT of insurance is that the healthy subsidize the sick, the people with houses subsidize those whose houses burn down, etc. If the word 'subsidize' sounds like socialism or something, then you might as well take all this pool-splitting to its logical conclusion and split it three hundred million ways, so to speak: everyone can go back to fending for themselves. After all, why should you be paying for the guy who weighs five pounds more than you, when he's 0.03% more likely to have a heart attack?

As far as health is concerned: everyone is young at some point, everyone gets old, accidents happen to most of us with varying degrees of severity, and so on. Having one pool is much better for all of us in the long run, and if you consider some notion of fairness or ethics, it's the only way to go.

[ Parent ]

that's not the point at all! (2.66 / 3) (#45)
by Delirium on Thu Jun 01, 2006 at 07:27:00 PM EST

You're correct, that people decide to pool risk, so if disaster strikes a few of them, they're covered. They do indeed pay a little for the security of knowing that the unforseen will not leave them homeless and penniless.

That all sounds pretty sensible.

But of course it only makes sense to pool with people of similar risk, or if you're to pool with others, have people pay proportionally. It isn't sensible for someone who takes care of their health to pool with a person who eats McDonald's for three meals a day and does cocaine frequently, to choose an extreme.

Look at, say, home insurance. A tree could fall on any home in my neighborhood; it's worth pooling the risk so that if it's my house, I'm not screwed. But would it be sensible for me to pool my risk with that of someone who built a $5m house on a landslide-prone hillside in Malibu? Of course not—or if I did, they had better pay a much bigger share of the pool's costs.

Otherwise you end up with the classic moral hazard, where there's no incentive to avoid any danger short of getting killed, because it's not going to cost you any more either way.

[ Parent ]

and it works out so perfect (none / 0) (#50)
by parasite on Sun Jun 11, 2006 at 03:44:36 PM EST

And isn't it just a lucky coincidence that the wealthiest percent of the population, who can so easily afford it, is the one's most needing of the more expensive insurance? It works out perfectly to divide it into these age groups, thus the backs of the poor young will not be broken -- and their ability to save will not be crippled for the sake of some old fools. Thus the young and poor of another generation can compound their interest over a lifetime and join with the ranks of the wealthy old as has occurred for generations of all those who aren't utter imbiciles. Thank god for it.

[ Parent ]
Odd (none / 0) (#51)
by slippytoad on Fri Jun 16, 2006 at 10:46:31 PM EST

This means then end of "cheap" plans.  Will you be able to afford it?

It's odd, because in most industrialized countries, single-payer insurance costs the economy considerably less than it does here in the U.S.  Also odd, because I make a  pretty good amount of money and am staggered by how destructive my health insurance is to my financial health right now.  I was looking at paying almost $600 a month for full coverage, so I opted for crap coverage and I now get streams of bills coming to my house every month.  It's nothing less than blinkered insanity.

Also odd because my insurance company routinely reports profit increases of 30% a year.  As my premiums continue to grow out of control.  Very odd indeed.
If I were the al Qaeda people right now I would be planning a lot of attacks in the next few days and weeks -- John "Bring 'em On" McCain
[ Parent ]

Get a new carrier. (none / 0) (#52)
by vectro on Wed Jun 28, 2006 at 02:02:47 PM EST

Until I switched to a group plan about 6 months ago, I was paying $66 a month for an individual health plan with a $2400 yearly deductible and $3200 yearly out-of-pocket maximum. And this was in San Francisco, not a place renowned for its economic health care.

“The problem with that definition is just that it's bullshit.” -- localroger
[ Parent ]
You completely left out... (3.00 / 6) (#2)
by terryfunk on Mon May 29, 2006 at 11:42:58 PM EST

any discussion regarding the foundation of modern insurance; actuarial science. Without at least a mention of that, a discussion of insurance is rather incomplete don't you think?

I like you, I'll kill you last. - Killer Clown
The ScuttledMonkey: A Story Collection

Agreed. (2.75 / 4) (#4)
by xC0000005 on Tue May 30, 2006 at 12:21:59 AM EST

Having eaten dinner with an actuary friend Saturday, I can safely say a lot of the conclusions in this article are incorrect. The irony is that the end effect is pretty accurate, it's just why that's wrong.

Voice of the Hive - Beekeeping and Bees for those who don't
[ Parent ]
what's wrong about it? (2.75 / 4) (#5)
by Delirium on Tue May 30, 2006 at 12:59:00 AM EST

I'm pretty sure of the main claim, that round-tripping money through the insurance system is a net loss, due to frictional costs (insurance-company overhead and profit), so should be avoided when possible and predictable.

[ Parent ]
Sigh (2.71 / 7) (#6)
by xC0000005 on Tue May 30, 2006 at 01:42:38 AM EST

There's no magic to it, and given that insurance company profits are not allowed to exceed a given percentage (it varies literally for every state.  Yes, all of them.  And yes, changing a product (actuary-ese for a insurance plan) does require approval in all 50 states.  Before it can take effect in one.)  

Anyway - you overlooked the main reason why low deductible programs cost more, and didn't even go into the whole mess with car insurance (yes, it violates the one rule that every other product has to follow), didn't go into the case where a low deductible product is actually priced at a point where it makes more sense to take it (home + car).  Your example with the house isn't factually correct, though as I said in the parent, the end effect is similar.  

"You pay the insurer the average expected cost of damage to your home, as estimated by their actuaries, plus some overhead and profit."

But that's not actually what is done, is it?  You pay the insurer an amount that is expected to cover the expenditures (including the administrative overhead) over a period (the products are developed with a minimum profit time period in mind.)  So, where does the insurance company's profit come from? (Think about banks for the answer).  

Sigh.  Next time Robert's over I'll try and convince him to dictate the basis for a story to me.  The fact is stranger than fiction.

Voice of the Hive - Beekeeping and Bees for those who don't
[ Parent ]

yeah, I did neglect to consider float (2.66 / 3) (#7)
by Delirium on Tue May 30, 2006 at 01:47:08 AM EST

Conceptually I'd consider that a sort of frictional cost of a different sort—rather than literally giving the insurance company profit as a fee or percentage, you're giving them your money to play with as float instead of earning interest on it yourself by sticking it in a bank account and self-insuring (up to the amount that you can reasonably do so).

[ Parent ]
home + car (2.66 / 3) (#8)
by Delirium on Tue May 30, 2006 at 01:50:43 AM EST

I actually have home+car from the same insurance company (I'm under 25, so can count on my parent's insurance, and they own a home), and we've found that both the home and car have the pricing such that raising the deductible is a good idea given our expected use of the insurance. Raising the home deductible from something like 0.5% to 3% of the house's value saved enough premiums to pay for for damage every 6-8 years, which is of course more often than it actually happens. So we just have 3% of the house's value in a bank account instead of paying that amount to the insurance company repeatedly every 6-8 years. (Some numbers in this post are from memory, but the gist is right.)

[ Parent ]
Nicely put (none / 1) (#20)
by opusman on Tue May 30, 2006 at 05:26:51 PM EST

Doesn't say anything common sense couldn't tell you, but common sense is sadly lacking in many people...

OK ... Now I am really confused (2.00 / 2) (#27)
by terryfunk on Wed May 31, 2006 at 07:57:15 AM EST

This reached 70 so why didn't it go to the FP? The comments thingie again?

I like you, I'll kill you last. - Killer Clown
The ScuttledMonkey: A Story Collection

FP/SP is separate (none / 1) (#31)
by Delirium on Wed May 31, 2006 at 08:55:39 AM EST

A story that reaches 70 is posted; whether it gets posted to a section page or the front page depends mainly (exlusively?) on what proportion of the votes were for FP versus SP.

[ Parent ]
thanks, I forgot and... (none / 1) (#32)
by terryfunk on Wed May 31, 2006 at 10:16:27 AM EST

neglected to look.

I like you, I'll kill you last. - Killer Clown
The ScuttledMonkey: A Story Collection

[ Parent ]
Perfectly obvious (3.00 / 6) (#28)
by Eivind on Wed May 31, 2006 at 08:23:07 AM EST

This article is perfectly obvious, the only thing nonobvious is why people in general don't understand that insuring against risks you can easily shoulder yourself is going to have to be a loss on the average, assuming you don't know something the insurer does not.

For car-insurance it's particularily nutty. We've got $1000 self-risk, and the insurance-company pays the rest. This cost us $150/year less than it would with $300 self-risk.

So, on the first glance, it would appear that the higher self-risk pays only if you have a $1000+ accident no more than every 5 years or so. (or a smaller accident even more often) This is pretty obviously going to be the case for most careful drivers.

But in reality it's much much worse than this for the low self-risk insurance. Thing is, theres this thing called a bonus. Basically, the more years you drive without an insurance-claim, the higher the bonus you get (it can go up to 75%), so your insurance gets cheaper.

You fall back in bonus if you make an insurance-claim of any size.

So, what this practically mean is that with a $300 self-risk insurance, it's a loss to claim insurance if you have a $500 accident. The bonus-loss will for most people cost more than the $200 you'd get from the insurance-company short-term.

So, people think that the lower self-risk ain't so bad an idea, because it means they'll get money from the insurance-company even for smaller accidents. And it just ain't true. Sure you can *get* the $200 after the $500 crash. Thing is, if you opt for that, it means you'll be paying $400 more in insurance over the next following 5 years or so, so it's a stupid thing to do.

Use insurance to cover those risks you cannot or willnot shoulder yourself. Even then, have the highest possible self-participation you're willing to risk. The only exception to this is if *you* for some reason know that you're high-risk, and the insurance-company *doesn't*

Your logic misses the mark. (2.66 / 3) (#33)
by tthomas48 on Wed May 31, 2006 at 12:42:54 PM EST

The big problem here is that many people buy insurance for peace of mind, something the article doesn't address. I may be paying quite a bit more over time to have my $250 deductible, but I know that I will always have $250 in the bank and won't have to charge up my credit card. The peace of mind I get by having the low deductible more than makes up for the hit in my wallet.

It would also be interesting to see an analysis of what happens if you pay off your deductible on a credit card. My math skills are piss poor, but I'm sure someone here could do it. I have a hunch that depending on how fast you can pay off a $1000 deductible, and how high your credit card APR is the value of having a high deductible could change a lot.

I like my $250 deductible the most, however after being not at fault in 2 car totaling collisions, and being rear ended resulting in a new bumper (also not at fault). Remember that it doesn't matter how reckless you are, there are reckless people out there who can hit you. Insurance is there for a streak of bad luck. The $2000 or so I pay out in a year means that the insurance company will start making money off of me again in about 14 years. I can afford my monthly payments, and I am extremely peaceful when I sleep at night. If only the insurance could help with the PTSS.

how does that make sense? (2.33 / 3) (#34)
by Delirium on Wed May 31, 2006 at 12:54:30 PM EST

If you want peace of mind, simply take what you save in insurance premiums and put it in a bank account. As I noted, that's what I do; I've saved $1000 from lower car insurance premiums, and now I have an $1000 bank account that's earning me interest and waiting in case I need it in the future. There's nothing requiring you to take any saved premiums and spend them.

[ Parent ]
A big problem... (none / 1) (#40)
by tarsi210 on Thu Jun 01, 2006 at 03:03:58 PM EST

A big problem is that many people either cannot or will not take the money they would save on a higher deductible and put it away.  Thus, having a lower deductible, while ultimately paying more, makes more sense.

I'm just starting to clear out debt, so taking higher deductibles will soon be an option because I can actually start having a savings account soon.  However, during this time and previous when there has been NO savings whatsoever, I cannot shoulder $1000 outright to fix my car.  Thus, I pay for it in higher premiums and more peace of mind.

There are many other people who simply don't have the constitution to put that money away and not touch it.  If you're one of those people, a lower deductible is your way of covering your ass. :)
[ Parent ]

I suppose that's reasonable (none / 0) (#41)
by Delirium on Thu Jun 01, 2006 at 03:20:39 PM EST

So long as you know you're opting to pay a bit more for the convenience of a financing plan, rather than thinking it's a good purchase as insurance per se.

[ Parent ]
Yeah, but... (none / 1) (#42)
by tthomas48 on Thu Jun 01, 2006 at 03:39:06 PM EST

You're still using the pejorative term "financing plan". When does insurance become a financing plan, and when is it simply insurance? We are all assessing our financial risk and deciding what makes the most sense for us. Insurance is always essentially "a financing plan". Otherwise I would just keep enough money in the bank to replace everything I own.

[ Parent ]
the way I see it (3.00 / 2) (#43)
by Delirium on Thu Jun 01, 2006 at 03:43:34 PM EST

Insurance per se is paying for risk you can't bear. A financing plan is an alternate way of paying for something that you can pay for. For example, if I want to buy a car, I could save up $20,000 and buy it, or I can buy it on credit and pay it back a portion at a time. That's not in any way insurance; it's just a different way of paying for it. I see low deductibles as doing the same thing—instead of you putting $200/year in the bank and keeping it there, the insurance company is forcing you to pay them $250/year instead, and then they hold the money for you.

[ Parent ]
You should at least consider therapy (1.31 / 16) (#35)
by daani on Wed May 31, 2006 at 01:10:57 PM EST

In some other comment you say you are under 25. You are under 25 and you write mind-numbing articles about your sensible approach to insurance. You are gonna be some cunt when you're 40.

Had to be said. Please think about it.

The article only discusses liability insurance. (none / 1) (#36)
by haflinger on Wed May 31, 2006 at 02:11:36 PM EST

However, the same thing applies to all types of insurance.

Suze Orman has been saying this kind of thing for years. The basic principle is that self-insurance is better, because it's your money: giving insurance companies premiums is a good thing when you can't afford to self-insure, but as soon as you can afford to self-insure, you should cancel your insurance, and you should try to keep your premiums as low as you can because that means that you'll have a lot easier time getting to where you can self-insure.

Did people from the future send George Carlin back in time to save rusty and K5? - leviramsey

Insurance anomaly (none / 1) (#46)
by rossw on Thu Jun 01, 2006 at 08:31:14 PM EST

In NSW we have compulsory 3rd party insurance for Motor Vehicles. This covers the risk to other road users and you pay it every year at registration time. It's also a good idea, if you have a vehicle not worth insuring, to have 3rd party property insurance, becuase the risk is hard to quantify.

Some insurance companies give you a discount on your 3rd party Property insurance if you also have comprehensive insurance.

I had a Honda CB250RS motorcycle worth about A$500. When I went to get the Compulsory 3rd party for it, I found that, with my 60% protected no-claim bonus, and the comprehensive insurance discount, the total insurance bill was was CHEAPER if I insured my bike fully than it was if I only got 3rd party property damage.

So the insurance company was effectively saying that my risk of getting my bike stolen or damaged was negative, or that my bike was actually worth less than zero. Not sure how that works.
This ship is so much nicer now that the rats have left.

Negative damage? (none / 0) (#49)
by gordonjcp on Wed Jun 07, 2006 at 01:24:18 PM EST

Is that like, someone steals the wheels and exhausts and brings them back re-chromed?

Give a man a fish, and he'll eat for a day. Teach a man to fish, and he'll bore you rigid with fishing stories for the rest of your life.

[ Parent ]
who needs insurance? (1.33 / 3) (#47)
by alecsmare on Sat Jun 03, 2006 at 02:07:19 AM EST

I only buy the insurance that the law makes me buy, insurance is for pussies. Insurance companies are getting rich on our backs. I buy my piece of mind with a diversified portfolio.

A flash of light, a cloud of dust and ... what was the question?

Moron (2.33 / 3) (#48)
by trhurler on Sat Jun 03, 2006 at 03:02:07 AM EST

1) A diversified portfolio can still lose 90% of its value in a weekend - it has happened before in history.

2) All arguments about law aside, you OUGHT to insure yourself in any situation where serious liability might reasonably rear its head for several reasons.

a) If you ever do need it, the insurance will earn you a ton of money compared to your strategy. When it comes to portfolios, cash flow is king - having more now is always worth MUCH more than anything else due to the compound nature of interest. You don't want to lose a huge chunk even if you can replace it. Insurance fixes this.

b) If you are like most people, you will lie, cheat, steal, and rationalize it all to yourself to prevent paying a lot of your own money, EVEN IF you owe it. This will cost a lot in legal fees even if you succeed, and if not, you're doubly screwed. Just buy insurance instead.

c) While insurance is a healthy business, it isn't nearly as profitable as a lot of other things you gleefully pay for.

d) Without insurance, any court settlement against you is likely to include a condition that you will cease the activity that led to the liability.

'God dammit, your posts make me hard.' --LilDebbie

[ Parent ]
Don't buy insurance you don't need! | 53 comments (43 topical, 10 editorial, 0 hidden)
Display: Sort:


All trademarks and copyrights on this page are owned by their respective companies. The Rest 2000 - Present Kuro5hin.org Inc.
See our legalese page for copyright policies. Please also read our Privacy Policy.
Kuro5hin.org is powered by Free Software, including Apache, Perl, and Linux, The Scoop Engine that runs this site is freely available, under the terms of the GPL.
Need some help? Email help@kuro5hin.org.
My heart's the long stairs.

Powered by Scoop create account | help/FAQ | mission | links | search | IRC | YOU choose the stories!