View Full Version : Investing (and self-insure) vs. Insurance
roxybeme1997
12-1-20, 1:13pm
I read an article recently that cast my beliefs about insurance into doubt. The long and short of it is the idea that you're ALWAYS better off investing the money that you would have otherwise paid toward insurance premiums, as long as you can stomach the risk and deal with the worst-case scenario (and that's a big if).
What types of insurance do you think are ALWAYS justifiable versus just sticking the money into index funds instead? What types of insurance are a terrible deal versus investing the money instead?
Aforementioned article for reference: https://www.tripofalifestyle.com/money/how-much-insurance-do-i-need/
iris lilies
12-1-20, 1:19pm
Must have :
*Health insurance.
*umbrella liability insurance, and all of the under insurance required to have umbrella.
Bad deals:
*whole life insurance (corrected! Thanks all!)
*term life insurance in most circumstances without minor dependants
*comprehensive/collision coverage on old cars
*probably long term care insurance these days
I've thought of that myself, especially when I was paying $1700/month for health insurance premiums. I have no chronic conditions and it really irked me to pay so much money. Then I thought maybe there are co-operatives out there where people pool their money and then pay out for its members at a cheaper rate. There are co-operatives, but the premiums aren't much cheaper, at least where I was living.
I think if I were to go that route the following assumptions would have to hold:
a) I'd have to have a pretty good amount to designate right off the bat that I could THEN start adding the amount of what premiums would be. That amount would have to be at least a couple of hundred thousand dollars to earmark for some calamity.
b) I'd have to be youngish.
c) I'd have to be healthy, with no current conditions, and nothing in my family history that might be a red flag for high health care expenses.
I agree with the article that health insurance really is the most important. I now have Medicare which is extremely affordable. Most other insurances I haven't had for years (since leaving corporate). No life insurance, no disability, no long-term care. I actually should get some term life insurance. I've had a couple of offers in my inbox for a month or so and haven't gotten around to really analyzing them.
roxybeme1997
12-1-20, 1:46pm
Must have :
*Health insurance.
*umbrella liability insurance, and all of the under insurance required to have umbrella.
Bad deals:
*term life insurance
*w hole life insurance in most circumstances without minor dependants
*comprehensive/collision coverage on old cars
*probably long term care insurance these days
Why do you think term life insurance is always a bad deal? I thought whole life insurance was really the bad one to avoid.
roxybeme1997
12-1-20, 1:48pm
I've thought of that myself, especially when I was paying $1700/month for health insurance premiums. I have no chronic conditions and it really irked me to pay so much money. Then I thought maybe there are co-operatives out there where people pool their money and then pay out for its members at a cheaper rate. There are co-operatives, but the premiums aren't much cheaper, at least where I was living.
I think if I were to go that route the following assumptions would have to hold:
a) I'd have to have a pretty good amount to designate right off the bat that I could THEN start adding the amount of what premiums would be. That amount would have to be at least a couple of hundred thousand dollars to earmark for some calamity.
b) I'd have to be youngish.
c) I'd have to be healthy, with no current conditions, and nothing in my family history that might be a red flag for high health care expenses.
I agree with the article that health insurance really is the most important. I now have Medicare which is extremely affordable. Most other insurances I haven't had for years (since leaving corporate). No life insurance, no disability, no long-term care. I actually should get some term life insurance. I've had a couple of offers in my inbox for a month or so and haven't gotten around to really analyzing them.
Yes, my thought is that to forego health insurance, you'd really need to be pretty rich (>$2 million net worth at least). Scary to do otherwise.
Yeah, whole life is the one to avoid. If you need life insurance -- big if -- term is much more efficient until you're too old or sick to purchase it at a reasonable cost.
The thing about insurance is that it's there to cover expenses you could not easily cover yourself.
I tend to think about insurance as a continuum, too. For example, there's a time when you'll want full coverage on your car or truck (or it may be required as a condition of a loan). After several years you can choose to drop some of that coverage. Or you may choose a higher deductible to lower the premium (though ime that doesn't work as well as most articles about insurance promise).
Good insurance:
- medical insurance
- Medicare supplements (if you qualify)
- auto insurance (at a level that protects you against big loss, including injury)
- umbrella insurance
- disability insurance (if you're still working and would need the income you wouldn't be earning if you couldn't work; you're more likely to be injured seriously at work than to die at work and worker's comp is not enough)
- life insurance (if you have property or people who are dependent on your income)
Insurance you probably don't need:
- long term care insurance (very expensive for all the loopholes that get them out of paying)
- most dental and vision care insurance unless you have a history of that being really expensive in your life
- specialized insurance (trip insurance for a $800 air flight, for example), most extended warranties/purchase protection plans (some people get these through their credit cards anyway)
- no-questions-asked insurance (burial benefits, etc.; again, very expensive for what you get)
- mortgage- or car-loan-gap insurance (if you're doing this right, you're not buying yourself upside down and those would be covered under life insurance)
frugal-one
12-1-20, 2:09pm
Not needed IMO.... extended warranty insurances.
I have often thought of dumping home insurance. The deductible is so high that it would take a catastrophic event to be useful but...I will keep it. I dropped umbrella as the chances of needing it are minuscule. Possible but not likely. We dropped life insurance once kiddo was grown. Don't have vision or dental. So...all we are left with is house, car (dropped comp/collision) and health.
I bought our umbrella insurance after hearing about a good friend of my sister's experience. She had been backing out of a parking space but stopped because another car was coming towards her. The other car didn't stop and rear-ended her. Since she had still been in reverse at the time the cops blamed her for the accident. The person that hit her had some sort of brittle bone disease and sued her for $500,000. Because sister's friend didn't have that much auto liability insurance her insurance company refused to take up the defense. Eventually sister's friend's lawyer got the demand whittled down below $100,000 and the insurance company finally stepped with defense costs since it was now below the policy limit. If there had been an umbrella policy in place the insurer would have defended the claim from the beginning.
We bought term life about 20 years ago and locked the price in. About 275 a year for $100,000. My husband’s just expired. They wanted us to renew for about 125 a month. We declined. No reason for it now that the kids are grown. That’s the only reason we bought it. We’ll keep mine for the 2 years that are left on the 20 year locked in price.
I’ve been thinking more about vision and dental related to choosing new health insurance. For 23 years we got it cheaply through work. I’m leaning toward self insuring on those two things, so it’s reassuring to hear others who agree.
We do pay about 100 a month fir car insurance. Our fully electric car is only one year old. We want to protect that fully paid for investment. But as the years go by maybe we’ll lower our coverage. Good thoughts ...
I dropped umbrella as the chances of needing it are minuscule. Possible but not likely.
Yes, but when you need it... it's well worth years of paying the minuscule premium. However, one does have to factor in the higher coverages insurance companies often insist upon before they write an umbrella policy, so it's not really just $100-200. But we were insured beyond minimum anyway so it wasn't much of a risk to have it.
iris lilies
12-1-20, 3:30pm
Why do you think term life insurance is always a bad deal? I thought whole life insurance was really the bad one to avoid.
You guys are right! i will correct!
iris lilies
12-1-20, 3:32pm
Yes, my thought is that to forego health insurance, you'd really need to be pretty rich (>$2 million net worth at least). Scary to do otherwise.
Oh Honey, that’s when you need health insurance, to protect the sizeable stash. $2.5 million is chump change in a health event of major proportions.
iris lilies
12-1-20, 3:37pm
We have always self-insured for dental treatment and optometry. It’s just not a big deal. And yeah we both wear glasses. Before DH had his eyes fixed, his eyeglasses were $1000. But that’s what people do, save money and pay the bill. this idea that everything have to be paid for by someone else it’s just very strange to me
I do know one demographic that could possibly benefit from whole life insurance and I am talking about whole life as you guys point out. Some people who are poor and who cannot who cannot save money, use it as something to leave their children. That is a very bad economic equation when you run the numbers, but it has something to do with not being able to open a savings account account in someone else’s name and contribute regularly to it. But the main thing about these whole life insurance policies is that they’re not part of the person’s estate and Nanny Government will not come after that sum of money for Medicaid/nursing home costs.
This latter situation is not something my family or DH’s family would run into, but one of my friends ponted out it worked for his mother and she left him a bit of money this way.
I self-insure for vision and dental.
I purchase health insurance on the state exchange, to protect my assets from an unexpected large healthcare expense. It's pretty miserable coverage, but I self-insure for the small stuff.
I maintain a large umbrella policy, again to protect my assets from Something Unpleasant.
I do not bother with life insurance on my own. If I die, there's plenty left to take care of my daughter in the style in which she would like to be accustomed. My employer, the fire department, does provide some life insurance for on-the-job oopsies.
The fire department also has a medical expense reimbursement program, that covers my first $2500 of receipts or so, which generally covers my vision/dental, and some of my insurance payments. Alan apparently pays for the rest, thanks ACA!
I don't buy extended warranties on most consumer products. I did purchase an extended warranty on one of my fancier cars, because it is super complicated, perhaps not-reliable, and the first "minor" repair would more-than-pay for the cost of the warranty.
dado potato
12-1-20, 5:48pm
Yeah, whole life is the one to avoid. If you need life insurance -- big if -- term is much more efficient until you're too old or sick to purchase it at a reasonable cost.
)
I had term life insurance, as a breadwinner. I felt that coverage was worth the premium while I had dependents (including step-children) who would have been unable to fend for themselves in the event of my death... minor children with university expenses ahead of them. I would consider my spouse's employment prospects, and I always figured she would get along fine, if I bit the dust. During those years I paid an insurance company to carry a defined financial risk of my death.
I currently have dental but it only really makes sense because my employer pays about 70% of the premium. Vision doesn’t make sense. I just pay out of pocket because I know that it will be about $320/year. I make sure to put enough money in my FSA to cover that every year.
I just upped my employer term life from 1x my salary (entirely paid for by employer) to 3x my salary (the past 2x paid by me but reasonably priced) so that SO will not be unduly burdened by the house if I kick the bucket.
If I were looking to save money on insurance premiums in an effort to invest more (assuming that I had a decent amount of assets, which I am fortunate in fact to have) I would focus my insurance purchases on buying insurance to avoid catastrophic losses. And I would self insure for smaller losses. For instance with home and auto insurance I would opt for the absolute highest deductibles available, but would keep full property coverage on my home in case it burned down, and for liability maintain a sizable umbrella to avoid suffering from a catastrophic liability claim against me. I would drop low risk stuff like dental and eye care where I"m likely to have a steady stream of stable bills year after year. I would maintain health insurance but with a high maximum out of pocket and high copay. I would drop all life insurance if there is no one dependent on my income to maintain their lifestyle. If someone is dependent on me then I'd keep enough term life in place to support that.
Doing stuff like that would reduce my premiums but still give me the peace of mind that a catastrophic event would only cost me an out of pocket expense that I could afford.
As it is the insurance I have doesn't necessarily match my recommendations but that's because some of it is partially paid for by my employer. Taking that into account I've made some different decisions. I also maintain full collision and comprehensive on my 19 year old car because the whole policy for both liability/first party is only $500/year. As old as the car is dropping first party coverage would save me less than $100/year.
roxybeme1997
12-2-20, 3:14am
If I were looking to save money on insurance premiums in an effort to invest more (assuming that I had a decent amount of assets, which I am fortunate in fact to have) I would focus my insurance purchases on buying insurance to avoid catastrophic losses. And I would self insure for smaller losses.
I'm beginning to think this is really the winning idea. Mostly the same thing advocated in the article in my original post.
Appreciate all the input...this forum is really active!
Many many years ago, someone told me - look at the biggest buildings in any city, they are insurance companies. Meaning of course insurance companies make a lot of profit. I carry health insurance and house/umbrella/car insurance to protect my assets, but no life insurance (no dependents). I only had life insurance when it was provided for free by an employer.
dado potato
12-2-20, 10:11am
I agree with jp1.
At the same time I opt for the highest deductables available, I need savings in a bank or credit union "for the unexpected". My practice is to put in 100-200 dollars per month. I have never had a claim, but if I did have a claim, the deductible could wipe out my reserve for the unexpected. Additionally I would likely need to sell stocks and bonds.
I did shop around when I first became a customer for auto insurance. I shopped around again when I became a home-owner, and I concluded the most competitive quote would be on bundled insurance with home and auto coverage from the same company. Since then, years of claims-free insurance resulted in a discounted premium on the bundle. I have not shopped around in the past ten years, but I suppose I should, just in case there is an insurance company that is more competitive than the one I am with now.
I understand that I could get auto insurance with (potentially) a lower premium if I have a chip installed in the insured vehicle which would monitor my safe/unsafe driving habits, miles traveled, etc. I personally would not sign up for this. I generally don't appreciate surveillance on me. I wonder if the parking lot, in-store, in-park-pavilion, and doorbell cameras are nearing a saturation point. Besides, I brake for birds, deer, and even turtles on the lonely forest roads around here... I understand that "panic braking" would be reported to the insurance company by the chip as an unsafe driving incident, and tend to increase my car insurance premium.
ApatheticNoMore
12-2-20, 12:43pm
With health insurance I'll actually get the lowest deductible, it's peace of mind, like I want to be worrying about medical costs, and every little loophole they will find, anymore than I need to when I'm sick.
The only other insurance I have is car insurance for which I could probably reduce the amount of comprehensive (you don't want to reduce liability, there are really expensive cars on the road) and renters insurance which since it's bundled with car insurance and reduces the cost of car insurance is actually effectively free).
It is interesting to think about how many of our dollars go towards insurance of one type or another. It is currently our highest monthly outgo after groceries. We have had one homeowners claim in our life and that was for being sued by the people we sold a home to (non-disclosure claim). The damages, ie installing a French drain were about $2500 so it cost us very little after the deductible. No auto claims ever. Health insurance was always covered by our employers but that is the only insurance we have ever actually benefitted from.
rosarugosa
12-2-20, 3:30pm
Dado: If you've been with the same insurer for many years, it is definitely worth comparison shopping. I learned from someone on this forum several years ago that insurance companies do the opposite of rewarding loyalty, so you can almost certainly get a better deal with another carrier. I saved something like $1800 per year by switching. The premiums have since inched upward although we did dip a little bit this year, but by next year, we should probably shop around again.
iris lilies
12-2-20, 3:47pm
Dado: If you've been with the same insurer for many years, it is definitely worth comparison shopping. I learned from someone on this forum several years ago that insurance companies do the opposite of rewarding loyalty, so you can almost certainly get a better deal with another carrier. I saved something like $1800 per year by switching. The premiums have since inched upward although we did dip a little bit this year, but by next year, we should probably shop around again.
over on the MMM site they are yelling at me for paying too much in umbrella insurance. Currently its is about $1200/ annually for us which is HIGH! I remember back when it was cheap, just a couple hundred bucks. I suppose I’m getting ripped off….
over on the MMM site they are yelling at me for paying too much in umbrella insurance. Currently its is about $1200/ annually for us which is HIGH! I remember back when it was cheap, just a couple hundred bucks. I suppose I’m getting ripped off….
That is high. Ours just renewed for $241.
That is high. Ours just renewed for $241.
Mine is only a few hundred $$$ a year as well.
My 2mm umbrella was around $300 iirc.
iris lilies
12-2-20, 6:58pm
Ugh. Crap. I don’t know when our umbrella insurance cost went up so high. Maybe our agent misspoke when we last talked.
But now I will have to look into it. Thanks for nothing! Hahaha, really, but thanks!
Ours is $1m so yeah &300 for $2m sounds about right.
iris lilies
12-3-20, 10:24am
Here is what my insurance guy says, below. PUP refers to umbrella insurance coverage. I was wrong, it’s not $1200 it’s $847 annually but still high. I know it costs real money to live in the urban core where rioting and crime is rife, but it still seems high. The MMM guys are saying they live in urban core as well and their umbrella insurance is not as high. I’m not sure I will do anything about it but I will think about it.
“Your PUP is $847/year for 3 million with 4 cars, specialty auto, and 3 properties.
63104 is a factor also.”
I only have 2 cars, no specialty cars and 1 property, so it makes sense yours is higher, but doesn't really explain why its THAT much higher. For example, going from 1mm to 2mm umbrella is not linear- the second mm is less than 1/2 of the first mm.
Here is what my insurance guy says, below. PUP refers to umbrella insurance coverage. I was wrong, it’s not $1200 it’s $847 annually but still high. I know it costs real money to live in the urban core where rioting and crime is rife, but it still seems high. The MMM guys are saying they live in urban core as well and their umbrella insurance is not as high. I’m not sure I will do anything about it but I will think about it.
“Your PUP is $847/year for 3 million with 4 cars, specialty auto, and 3 properties.
63104 is a factor also.”
I suppose having multiple urban sidewalks would make it more expensive. People walking past our place are not on our property so there's less chance for people to get hurt. I'm curious, by specialty, do they mean fast? I can understand that also causing the premium to go up.
As a random aside, when I did the california insurance broker class this spring I learned that insurers can't rate personal auto liability on the model of car, only on driver characteristics and driving history. If I had only liability coverage my price wouldn't change if I traded in my 19 year old Accord for a mega fast sports car.
iris lilies
12-3-20, 3:00pm
I suppose having multiple urban sidewalks would make it more expensive. People walking past our place are not on our property so there's less chance for people to get hurt. I'm curious, by specialty, do they mean fast? I can understand that also causing the premium to go up.
As a random aside, when I did the california insurance broker class this spring I learned that insurers can't rate personal auto liability on the model of car, only on driver characteristics and driving history. If I had only liability coverage my price wouldn't change if I traded in my 19 year old Accord for a mega fast sports car.
The “specialty “auto is a 1964 Italian scooter that can barely go up Hermann Hills and is anything but fast.
Neither one of us have had moving violations that I can remember in 30 years. No accidents.
oh wait, DH was hit while driving his truck but it was the other guy’s fault and his insurance paid. Once our car was stolen, But since we had liability only on it, he did not come to pass to be a problem for the insurance company since we got it back within a couple of weeks.
My umbrella policy dropped in cost considerably once I sold off all of the commercial real estate I owned. Apparently "slip and falls" are a thing.
I have some issues with insurance pricing in general: I own 7 automobiles/trucks, 3 boats with motors, and a couple boats without motors. There is only one of me, I can only operate one thing at a time, it seems the pricing doesn't really give enough of a "multi-vehicle discount" to account for the fact that I generally drive < 6000 miles a year across all of the vehicles, have had no tickets in 30 years, have advanced driving training and experience, and receive mandatory ongoing safe driving training and certification each year in order to be able to drive the fire engines.
iris lilies
12-3-20, 5:36pm
My umbrella policy dropped in cost considerably once I sold off all of the commercial real estate I owned. Apparently "slip and falls" are a thing.
I have some issues with insurance pricing in general: I own 7 automobiles/trucks, 3 boats with motors, and a couple boats without motors. There is only one of me, I can only operate one thing at a time, it seems the pricing doesn't really give enough of a "multi-vehicle discount" to account for the fact that I generally drive < 6000 miles a year across all of the vehicles, have had no tickets in 30 years, have advanced driving training and experience, and receive mandatory ongoing safe driving training and certification each year in order to be able to drive the fire engines.
I had that same thought as you, why does it matter how many cars are in our fleet there’s only two of us in the house while driving? Both of us are old. We have no teenage drivers.
We did not even have to change companies to get a huge discount. Our agent retired and the new one amazingly pointed out how we could save 40% on our auto insurance if we let them track our driving for 3 months. Worked like a charm. But I agree with letting various companies provide their best offer.
SteveinMN
12-4-20, 12:30pm
I own 7 automobiles/trucks, 3 boats with motors, and a couple boats without motors. There is only one of me, I can only operate one thing at a time, it seems the pricing doesn't really give enough of a "multi-vehicle discount" to account for the fact that I generally drive < 6000 miles a year across all of the vehicles, have had no tickets in 30 years, have advanced driving training and experience, and receive mandatory ongoing safe driving training and certification each year in order to be able to drive the fire engines.
It's the almighty algorithm. Goodness forbid we temper protocol with common sense.
We live in the hide-your-pearls-and-your-children urban core, too, and pay $119 for a million in coverage. Two vehicles, nothing specialty about them, our home and the home I rent to my mom.
iris lilies
12-4-20, 4:35pm
Hmmmm, I think one of the reasons why we stick with this company and I’m loath to leave it right now It’s because we have earthquake insurance on our city house. If I remember right, you can’t get that anymore. We are grandfathered in. Once we get rid of the city house It will be time to review everything.
Due to all of your discussion, we’re buying umbrella insurance for the first time. Last year I inherited 80 acres of farmland in Ohio. Now I’ve got a significant asset to protect. It’s worth 5x what our house is worth.
It will cost 151 a year to increase coverage in auto insurance, and the 1M umbrella costs 283 a year.
(For comparisons, we own one house, one vehicle, and the farmland. The land has a very affordable 1M liability policy for injury that occurs on the land during planting and harvest. Typical insurance on home and car.)
Thanks to you all for this info. I discussed with my parents* and they hadn’t thought of the scenario where someone sues and I would be forced to sell the land to pay a settlement. They are now discussing with the other two kids to be sure they are covered as well.
* inheritance happened prior to their deaths, arranged by them, to avoid conflict among their 4 kids. Verbal agreement not to sell the land until my brother turns 73, as I’m renting to him and this is his livelihood
Our umbrella is under $400/year. We have 2 homes and 2 newer high end vehicles. It's a bargain for 3 million coverage.
iris lilies
12-11-20, 9:33pm
Our umbrella is under $400/year. We have 2 homes and 2 newer high end vehicles. It's a bargain for 3 million coverage.
Clearly, we are getting f@@ked,
Interesting thread. We carry $1 Million in PL on under both our Auto and Homeowners policies. In addition, we have an Umbrella Policy with $3 Million in coverage, our premium for that amount of coverage is $580. The premium reduced significantly when the last child moved out and bought their own insurance. It appears to me that your location and parties covered has a lot to do with your premium.
iris lilies
12-19-20, 10:40am
Interesting thread. We carry $1 Million in PL on under both our Auto and Homeowners policies. In addition, we have an Umbrella Policy with $3 Million in coverage, our premium for that amount of coverage is $580. The premium reduced significantly when the last child moved out and bought their own insurance. It appears to me that you location and parties covered has a lot to do with your premium.
We are going to review our entire insurance package when we move from the city. We are not changing anything now because our current insurance carrier has earthquake insurance on our city house and I believe, if I remember correctly, most carriers aren’t doing that anymore. You can’t get a new policy to cover earthquakes. We are in an earthquake zone but granted the chances are super low. And, it would not be financial ruin for us if our brick house crumbled to the ground, but still, I like having it. This high insurance is an unnecessary expense though I would think we could cut it by $300 annually.
iris lilies
1-4-21, 11:53am
Oh Honey, that’s when you need health insurance, to protect the sizeable stash. $2.5 million is chump change in a health event of major proportions.
We have one of those million dollar babies in our family at the moment. DHS nephew has a preemie who has been in the hospital for weeks.The mother was optimum age, early 20s, no health problems at all, but the pregnancy was a problem in her own care was extensive. That is easily a $1 million event.
The baby was born at about 26 weeks and is still in the hospital, gaining weight.
Her first pregnancy was routine, a $15,000 ish event.
We have one of those million dollar babies in our family at the moment. DHS nephew has a preemie who has been in the hospital for weeks.The mother was optimum age, early 20s, no health problems at all, but the pregnancy was a problem in her own care was extensive. That is easily a $1 million event.
The baby was born at about 26 weeks and is still in the hospital, gaining weight.
Her first pregnancy was routine, a $15,000 ish event.
Depending on where and if the baby was vented, an easy $35-50k per day!
iris lilies
1-4-21, 5:10pm
Depending on where and if the baby was vented, an easy $35-50k per day!
They are in flyover country but yeah I’m behind the times. I’m sure it’s closer to $2,000,000.
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