Looking back through the archives yesterday, I realized that I haven’t done a reader post in a while, so I thought long and hard and came up with what I think is a great topic for some reader input.
The Question
Given the choice, would you contribute more of your financial resources toward more, better, or expanded insurance products, or would you stash away the money and “insure yourself?”
Why It’s Controversial and Important
Whenever insurance comes up in circles of friends of family, it’s a hot button for defending one side or the other.
Some people believe that insurance is a fantastic concept and will protect them if disaster strikes. While they may have a good deal of savings, they rely on insurance to protect those savings and any shortfalls that may occur if something were to happen. They would happily upgrade to other forms of insurance or raise their coverages…
Others believe that while the concept is good, insurance companies are simply a bunch of crooks out to get our money and avoid covering us in a catastrophe anyway. So they stop wasting money and just save it all themselves, with the hope that they will have enough should anything happen…
What We Already Know
Yes, we already know that this is not a black and white question and requires some degree of balance.
Some insurance is pretty good to have, and even required by law (such as automobile insurance). So you can’t get away with just saving…
And we also know that if you just save your money, a catastrophic event still has the potential to wipe you out…so simply stashing your money is not usually the answer.
But we also know that in our budgets, we have a good degree of choice – play room in what gets prioritized and what gets sidelined.
So – given the choice, would you rather save more or insure more?
…Pour Your Heart Out
Here’s your chance to chime in and see what others think – leave a comment below with your advice, thought, or question!
The best comments will be featured in a follow-up post.
Fiscal Fizzle 
I think insurance is such a thief! I know I know you should plan for what’s coming, but what if nothing comes? Then what happens to all that money you paid to them?
I think that you should save the money that you allocate to insurance…if your employer gives you the option to have insurance for free of course take it, but there’s no need to get extra just save an extra 50 bucks a month and you’ll see how quickly that adds up.
You of course never know what’s going to happen but when has it been “healthy” to live on the what ifs! Save up and leave insurance agencies in the dust!
While I agree with you somewhat Ellen (saving a little bit every month can add up), I have some concerns about catastrophic events which are beyond anyone’s saving capabilities. Aren’t these the reason we have insurance?
On the other hand, I will say that I’ve heard many complaints about people trying to collect from insurance companies unsuccessfully when large amounts were involved.
So – are we out of luck either way?
When it comes to insurance I think you need to weigh what you’re insuring against, the likelihood that that event will happen, and then decide if you want that type of insurance based on what it costs and how much insurance you’ll receive.
For me, some of the most common types of insurance are a extremely important to have as they are insuring you against a catastrophic event that could ruin you financially. A car accident that you cause could lead to thousands of dollars in damages. (*plus its the law). Have one catastrophic medical event and you could end up in bankruptcy (we thankfully had insurance last year when my wife racked up 250k in medical bills).
So for me having many types of insurance make sense over saving. Because while they do cost an arm and a leg at times, they also transfer the risk of a catastrophic event like we had and save you from ruin. I would not have been able to save up enough to cover our costs.
For some folks who have amassed enough wealth, they may be able to self-insure – even for the worst of situations, so insurance may not be necessary. For me, I’m not quite there yet.
I like your thinking Peter, and I think it does come down to a risk analysis in most cases with my own finances as well. After all, we can’t insure ourselves against everything.
Thankfully, medical and auto insurance is more or less a standard in this country, at least for those who are able to afford it with any degree of comfort. They would be my first choices as well if nothing else was possible. Like you, I’ve seen what even quick hospical stays can do to people’s finances.
Here’s an interesting question based on your comment – do the wealthy need to insure less (because they can self-insure) or insure more (because they have more to protect?)…Hmmm.
I’d move toward saving more money than buying more insurance.
You should never count on NOT needing to cover expenses that may arise (car bills, health bills, etc.) but I’d rather control my money and manage my risk than pay toward something that I may never use.
As an example, I’ve always spent a ton of money on a PPO health insurance policy, just because that’s what I’d always done. But I’m pretty healthy and haven’t gone to the doctor in quite awhile (probably shouldn’t be saying that, but whatever). So switching to a low premium, high-deductible HSA health plan makes way more financial sense for me.
Jason – that’s a great point. In fact, a friend who recently lost his job told me that he was able to get health insurance for around $40 a month. He had to get a high-deductible to do it, and will have to pay full-price for doctor’s visits, but he’s healthy, and if disaster strikes, he’s still protected.
A little cost-benefit analysis never hurts when it comes to trying to get the “best” insurance “just because.” Often, we look at the small expenses, like doctor’s visits, without thinking about our real monthly costs and what insurance is really meant to protect us against – the big stuff.
I think it depends a lot on your circumstances and means. The more means you have, the less insurance you need (generally speaking).
Personally, I don’t carry full coverage on our car because if it is totaled, it’s rather inconvenient, but I would manage just fine. I do, however, carry enough term life insurance to replace my income if I should meet an untimely death in the next 20 years. My goal is to have enough assets when that 20 year term is over to be “self-insured”.
So, my take is that you need enough insurance to pay for relatively likely (humans have a 100% mortality rate) events that you can not afford out of pocket. I can afford to replace my car (even if its just with a beater), but I cannot afford to provide for my family if I am unable to work. I have health insurance with a high deductible because I can afford small medical bills, but cannot afford a medical catastrophe.
Of course, once I have enough assets to be self-insured I’m going to need some additional liability insurance…
I like your take on car insurance, even if it’s not what many typically do. My car is about 9 years old right now, and with a high deductible, it barely makes sense to keep my comprehensive and collision coverage active.
I think that it has been instilled in us that insurance translates to assurance that everything is safe. In reality we pay a lot of money monthly to cover things that never occur.
Currently my husband and I pay a homeowner’s premium for our condominium, which ironically has the outside walls already covered.
I guess until you have had something happen to you that you need to use your insurance for you don’t see the value in it. I have had to use medical insurance for an outpatient operation so therefore it is worth it for me to have. However it still pains me to have to pay a hefty co-pay each time I visit a doctor – what is the point of the monthly premium which is not a low cost plan?
I have also had to use car insurance so therefore I see the value in that as well, especially being so vulnerable on the roads nowadays!
All in all when I think of insurance, I think of people that make really decent incomes selling it. So therefore it seems like a money making scheme that they are being well compensated for.
Bayah – First, thanks for stopping by. (Bayah has been a long-time reader since the days when this blog only had 5 subscribers).
You’re absolutely right – until something happens, I think many of us just see insurance as money wasted. However, as Murphy would probably have it, the minute we cancel insurance coverage, we get hit with a catastrophe! Go figure.
I also have a distrust for insurance salesmen, particularly because they have a conflict of interest in the transaction – the money they make off a commission. I prefer to research and purchase my insurance online, where I know I can find some independent advice and good rates.
I used to have Education Insurances for both of my children but I had terminated them and take the money out to pay off our mortgage.
Now I prefer to save for education funds rather than buying educational insurance. Savings are more flexible and when you have more money you can save more and when you have less money you can save less. With insurance you will have to pay the premium even if you are out of job or have less money otherwise you will end up losing the insurance.
I am not cutting back on all insurances as I am also worrying about unforeseen events or circumstances that may arise. I still keep my husband’s life insurance because he is the main bread winner. I also have the fire insurance for our house.
I do not buy medical insurance because it is covered by my employer and for major medical problems I will go to the government hospitals. I am living in Hong Kong and it is relatively cheap to get medical help from government hospitals.