Investing (and self-insure) vs. Insurance

[roxybeme1997]

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/mon...nce-do-i-need/

[iris lilies]

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

[catherine]

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]

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]

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.

[SteveinMN]

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]

Not needed IMO.... extended warranty insurances.

[pinkytoe]

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.

[jp1]

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.

[Tammy]

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 ...