Why couldn’t somebody just put money in a savings account monthly instead of paying insurance monthly?
In: Economics
For one thing, the premium you pay is likely much smaller than the liability insurance you are buying. For instance, maybe you pay $1000/year to get covered for $1M of liability. You can do this because hundreds of thousands of people are paying $1000/year and not making any claims, so the insurance companies have tons of cash.
So say you crash and hurt someone and they sue you for $500,000. If you have insurance, they will pay that $500k, and probably increase your premium to say $2000/year. Well that’s still way way way less than if YOU saved $500,000 in the bank and then had to pay it!
ie; You can make your own insurance savings … but are you willing to give all of that money away? OR do you want to pay a small amount of that every year instead?
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