This debate continues among people at all sorts of social gatherings:
Is it better to take out insurance on a new cell phone, refrigerator, laptop or should you self insure? But how do you self insure? Well the simple answer is you create an emergency fund where you save the money that you would have paid for the insurance. When you take out insurance you’ll find that the insurance service providers jack up your premium, every year and sometimes way above inflation. So with your emergency fund you’ve also got to increase it each because the price of everything is increasing with inflation.
That’s the simple answer.
But how do you select items to self insure? With a big ticket item such as a motor vehicle you could self insure but you’re going to have to put away a lot of money. This is where insurance, if you can get a lower premium with benefits, is sometimes more sensible.
On a tight budget, without ever increasing income, you’ve got to think about these things. If you’re not on a tight budget, then none of this will make sense to you. What does it matter if you lose your cell phone or it gets stolen? If you’ve got a ever-rising monthly income, you can easily afford to replace it. But this is another category of person who doesn’t need to watch the pennies. Some people may call them big spenders, but they’ve been taking care of their lives and income.
What I’ve been talking about here is general physical goods, but when it comes to healthcare and business, there are things that require insurance, especially healthcare, because these days the cost of anything health-related has taken giant leaps further than Elon Musk’s Starship can go. Just look at what it costs to provide medical insurance for yourself and consider the gigantic annual increases. I’ve prepared a list below of some general guidelines when it comes to personal insurance. The benefit of going through them is that you might be reminded of something important that you haven’t got around to looking at to ensure, and it might need insurance. Remember that in this country, loss of property is mainly due to criminal activity because the country has rampant crime. The economic system has failed millions and crime is now the occupation of millions too. How long will you possess your valued possessions?
These guidelines are presented for informational purposes only. If you want to make decisions about what to insure and what not to insure, you should speak to a professional advisor.
General guidelines
Deciding whether to get insurance or to self-insure depends on several factors, including the potential financial impact of a loss, your ability to cover the loss out-of-pocket, and the likelihood of the event occurring. Here are general guidelines on what items it would be prudent to insure versus those you might consider self-insuring:
Items to Insure
- Home and Property:
- Homeowners or Renters Insurance: Protects against damage or loss due to events like fire, theft, or natural disasters. Homeowners insurance is crucial due to the significant financial investment in a home.
- Flood and Earthquake Insurance: Separate policies are often needed in high-risk areas.
- Automobiles:
- Auto Insurance: Covers liability for accidents, as well as damage to your vehicle. This is often legally required.
- Health:
- Health Insurance: Protects against high medical costs from illness, injury, or preventive care. In many places, having health insurance is crucial due to the high cost of medical care.
- Life:
- Life Insurance: Important if you have dependents who rely on your income. It ensures they are financially protected if you pass away.
- Disability:
- Disability Insurance: Provides income if you are unable to work due to injury or illness. This is particularly important for those who rely on their salary to cover living expenses.
- Liability:
- Personal Liability Insurance: Covers you against lawsuits for injury or property damage that you or your family members cause to others. Often included in homeowners insurance but can be purchased separately as umbrella insurance.
- Business:
- Business Insurance: If you own a business, this protects against property damage, liability, and loss of income.
Items to Consider Self-Insuring
- Small Electronics and Appliances:
- Phones, Tablets, Laptops: Often covered under homeowners or renters insurance for theft or damage. Extended warranties and insurance for these items can be costly compared to potential replacement costs.
- Jewelry and Personal Valuables:
- If their value is relatively low, self-insuring might be an option. For high-value items, consider a personal articles policy.
- Minor Medical Expenses:
- For routine medical costs, such as annual check-ups or minor treatments, it may be more cost-effective to pay out-of-pocket rather than purchasing additional insurance.
- Pet Insurance:
- Depending on the age and health of your pet, it might be more economical to pay veterinary expenses as they arise rather than paying for pet insurance.
- Travel Insurance:
- For inexpensive trips or if you have coverage through your credit card, you might opt to self-insure.
Factors to Consider
- Financial Impact: Assess the financial impact of a loss and your ability to cover it without insurance.
- Likelihood of Loss: Consider the probability of the event occurring.
- Legal Requirements: Some types of insurance, like auto insurance, may be legally required.
- Peace of Mind: Insurance can provide peace of mind against uncertainties.
- Cost of Insurance: Compare the cost of insurance premiums with potential out-of-pocket costs.
Ultimately, the decision to insure or self-insure depends on your financial situation, risk tolerance, and specific needs.
Disclaimer
These guidelines are presented for informational purposes only. If you want to make decisions about what to insure and what not to insure, you should speak to a professional advisor.
