Insurance Series: Self insurance, a discussion
How does one think about insurance? Personally, I see insurance as a bit like a game of chance with a bunch of data to help stack the odds.
Car, home, life insurance might seem like a bit of a gamble, in a way. You say to the insurer “I bet you R1000 per month that I will write off my car and the other driver’s car in an accident, tomorrow”. The insurer says, “I bet you that this accident won’t happen until your premiums have already outweighed the claim”.
So, you have to ask yourself this question; am I prepared to play the role of the insurer and the insured? If the answer is yes, then you’ll need to consider the following.
Do I have funds to?
- Replace both my car and the other car involved?
- Pay all medical expenses for anyone injured in the accident?
- Cover a possible loss-of-income claim as well as my own expenses if I can’t work?
- Legal fees, possibly for both parties?
If you happen to have the money to put aside for this self-insurance, then the next question to ask yourself is if you rather invested that money would your investment bring you more money than the insurance premium and are you prepared to risk a total loss of that capital amount?
The bottom line is this. Insurance companies are run by some really smart people. They’ve calculated the risks and they’ve concluded that if they spread the risk over a varied demographic then they can mitigate their risk and guarantee you coverage for the monthly premium.
Personally, I don’t want to worry about having to replace my stuff if something happens, like an accident or theft. I chose to insure through a reputable insurer and to have the peace of mind that comes with it.
Until next time.
Richard from the MoneyShop Team
This article has been prepared for information purposes only and it does not constitute legal, financial, or medical advice. The publication, journalist, and companies or individuals providing commentary cannot be held liable in any way. Readers are advised to seek legal, financial, or medical advice where appropriate.