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. Isn’t it a waste to pay insurance premiums?
Yes, if you will always have the cash on hand, there is no point in insurance. Unless you’re trying to commit insurance fraud, it’s always just gambling in the house’s (insurance company’s) favour. Insurance on electronics and stuff you can replace is a complete and total waste. Don’t buy insurance on your cellphone or video game or whatnot. If you can’t afford to replace your cellphone, you’re buying way too fucking of expensive phone for your financial situation.
> always feel like I’m losing out by buying car insurance
I highly, highly, highly doubt you can just write off a two million dollar check to the victim of the car crash you caused that is now paralysed. This is why car insurance and house insurance are basically mandatory. Very few people have the cash on hand to buy a new house, or pay for causing debilitating injury and destroying property with a car. This is where insurance is useful. The house always wins still, but it’s insurance to make sure you aren’t completely and totally ruined by bad luck. Also, car insurance is often legally required (unless you’re really rich and basically tell your lawyer to set up your own insurance in essence), so you can afford to pay others. Not having car insurance is horribly immoral and selfish, beyond being illegal.
And if you did have two million dollars, I’d hope you have it invested so it’s still not on hand anyways. Investing it would pay out more than any insurance costs. Even if you could afford to pay for something, it’s not always a good idea to keep your assets liquid. Having to sell your house to pay for a lawsuit from a car crash you caused is obviously not ideal, better to pay the insurance.
Now, do you need collision on your own car to repair damage that you did to it yourself? Well, that depends. Do you have the cash on hand to replace your car? Then no. If you have a junker, don’t bother. If you have a nice car but a lot of money, don’t bother. Unless you like predictably, then maybe a fixed insurance payment is better than a surprise large payment even if you know it will likely cost you more. If your car being totaled would ruin you, maybe get collision. Also, maybe don’t buy such an expensive car.
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