Insurance - It’s Uses and Abuses
What’s a thing you pay huge chunks of money for every month, but hope to never, ever, use?
Insurance! It’s the answer to a question that sounds like a children’s riddle.
The big idea of insurance is super weird in that way. The right way to buy it is to only use it to avoid a rare, but not impossible, financial catastrophe.
That’s the trick. So rule number one: don’t buy too much insurance!
Here are the four things that lower our cost of insurance.
The premium is the amount you send every month, or every year, to the insurance company. That’s the cost you notice, as it comes out of your checking account. Obviously, look for a lower premium, probably through shopping more than one company to quote multiple policies.
The deductible is the amount you have to pay first, before the insurance company pays, when the bad event - the event you were hoping to avoid - happens. On a $1,000 car repair with a $100 deductible, for example, the insurance company pays out $900 while you take the hit on the $100. On the $750 root canal with a $300 dental deductible, your insurance company will only pay out $450.
As a rule of insurance - the higher your deductible, the lower your premium. If you can afford a high deductible - like if you have savings in the bank or can put something on credit in a pinch - then you can lower your premium. The stronger your financial situation, the higher your deductible can be, and the lower your overall cost of insurance. That’s a thing to strive for, over time.
The third way to lower costs is to look for exclusions. Like, if you have home-owners insurance and have no expensive jewelry at home that might be covered against theft, you could ask if they could exclude that from the policy. The insurance company is happy to lower their risk, and you’re happy to save a few bucks. It might be just $15 a year for that particular exclusion. If you can find a few more it adds up to real money.
The fourth way to lower the cost of insurance is to figure out what insurance you don’t need.
You can put insurance types into the categories of “Have to have,” “Might have,” and “Don’t need.”
Car Insurance - It’s the law, every state in the US requires you to carry auto insurance. It protects you from tens of thousands in a wrecked car, or far more if you or someone is injured by negligence.
Home owner - Our home is most people’s biggest investment. You need this.
Health insurance - Health care costs so much that few people can afford catastrophic illness, or even three nights in a hospital for that matter. Don’t skip this.
Life insurance is a maybe. If you don’t have children, then you don’t necessarily need it. If you are the primary earner in a household that includes dependents like little ones or a spouse who doesn’t work, then yeah, your death would be a financial catastrophe. Look into getting life insurance.
Car Rental insurance - There’s a very strong chance your existing auto insurance, as well as your credit card, already cover this insurance the rental place wants you to buy. Probably skip it.
Finally, warranties aren’t generally worth it. If you can afford the electronic device, you can afford it breaking. Don’t buy the warranty. If you can’t afford the electronic device breaking, you probably can’t afford it in the first place.