Does buying insurance makes sense for someone with very frugal money habits? I always feel like I’m losing out by buying car insurance. I am extremely frugal, only spend about 25% of my after-tax income, and rest are invested in low-risk bonds and index funds. I also maintain 2 years worth of living expenses in a savings account.
So my question is, what does an insurance buy me? I can afford to pay off in cash if something bad happens. Isn’t it a waste to pay insurance premiums?
In: Economics
> I can afford to pay off in cash if something bad happens
Liability insurance typically pays out $100,000 – $1 million. You must be rather wealthy, if you can afford a $1 million expense without having serious financial trouble.
> I always feel like I’m losing out by buying car insurance.
In a lot of states, if you get pulled over for any reason and don’t have proof of insurance, your vehicle can be impounded. You may also lose your driver’s license.
All of this applies to legally required liability insurance (covering lawsuits for injury / property damage).
If you want to save money, and you’re able to take the financial hit of needing to suddenly replace your car if it’s, say, destroyed in an accident, you could go with liability only coverage. That is, you could skip collision insurance (which pays to repair / replace your vehicle if it’s involved in a collision) and comprehensive insurance (which pays for non-accident-related problems like weather damage).
You’d still pay something (liability insurance) but it may be a lot less.
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