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
A thing that hurts a lot of people – you can do everything right when you’re driving. BAM! Some rando just caused an accident and now your car is totaled.
Insurance is both the law and makes sense because:
* If you’re at fault, at least you don’t have to fork over lots of cash. Insurance is a cushion if you make a mistake and the other party decides NOT to sue and instead take a payment from your insurance.
* If you are not at fault, you have a way to at least get a ride now that your car is totaled.
* An uninsured motorist hits you? You can buy extra coverage so that you are protected since there is a low likelyhood that the other party can pay.
* Injured? Whelp, litigation (at least in the US) takes time. The insurance company can offer a policy (for an increase in your premium) so that they pay some or all of your medical bills after the wreck.
As my father put it “You’re gambling that you will get in a wreck and an insurance company is gambling that you won’t”.
Unless you live in an extremely rural town with very little traffic, having even the minimum coverage is better than nothing.
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