Insurance Tips: How Often Do You Get Hit By Lightning?
Hello dear,
Last week, I thought I’d try something different.
The good people at Small Business Forum offered to share my letter on their page. Of course, I accepted.
However, this might have confused some readers of my series. They didn’t get notified when the letter came out.
… Whoops.
Sorry for that. If you didn’t see last week’s letter, here it is; “Credit Card Basics: Things You Should Know.”
Now, onto today’s letter.
Insurance — An Overview
The basic way an insurance company works is by charging money to a group of people and then paying those who have accidents and/ or make claims.
The basic idea is, if you cannot afford an accident (or some other bad event), the insurance company will help you.
Simple enough, right? Right.
Except when you mix in a little greed and fear.
Clearly, insurance companies make way more money than they pay to customers.
There’s a reason why GEICO has been around for 81 years, employs 30,000 people, and made $25.5 BILLION in 2016.
What’s the reason? Easy, they make a sh** ton of money!!!
How Do They Make So Much Money?
Two ways:
- Insurance companies hire groups of genius mathematicians known as actuaries. Those are the people who look at mountains of data and discover things like “statistically, there are X car accidents every year, the repairs cost a total of Y. If you get more than Z paying customers, you’ll be able to pay for all the accidents AND make a lot of profit!”
- Then come the psychologists. Those are the wizards who know how your brain works better than you do. They say “if we associate our brand with something funny, people will like us more. It doesn’t matter if the ad has nothing to do with the product, the goal is to make people happy whenever they think of us. That way, they happily become customers and trust us.”
Before you know it, you’re hooked.
Now, I love capitalism. I have nothing against companies making a lot of money.
I only have a problem if you, dear reader, are overpaying.
Are You Paying More Than You Should?
Judging from insurance companies’ insane profits, if you’re a customer you’re probably paying wayyyy more than you’re getting back.
The reason is lightning doesn’t strike that often.
You don’t need to pay thousands of dollars every year for unnecessary insurance.
So, what can you do to avoid being taken advantage of?
Here’s three good rules:
- Only get insurance if it’s mandatory (like car insurance).
- Only get insurance if you cannot afford a bad event (like owning a house in tornado-happy Oklahoma City).
- Only get insurance if you have some specific differentiator (like a chronic health condition, an upcoming baby, or a love for sky-diving).
What about insuring your iPhone? Your jewelry? Your laptop? Or your flights?
No! They don’t fall into any of the three categories.
“But my iPhone is $600. That’s a lot.”
Yes, it’s a lot. But if you’ve been following this series, you have more than enough money to repair your phone (or buy a new one) in case of damage.
The best insurance company is you. It is better to self-insure if you can afford it. Besides, if you cannot afford losing it, don’t buy the product.
Besides, take great care of your phone, find a good case, and don’t text while taking a bath. This reduces the odds of something bad happening to virtually zero.
What About Your Tips?
Like I said. I believe most insurances are unnecessary.
Sidenote: Yes, deciding what to insure is based on risk. If losing your home means you’ll lose a big part of your assets (not a good idea) you should probably insure it. A better idea is not to own a bunch of assets you can’t afford to lose. The quality of your assets should scale with the size of your net worth.
Here are a few tips I gathered for you. They apply to different types of insurance.
Car Insurance
The best car insurance is to buy a cheap enough (used) car that can easily be replaced. I wrote about it in detail here.
Which insurance do I use? Geico.
I have a 2012 Jeep Wrangler (I know, shameful. But it was a gift and I drive it less than 4 times a month) and only pay $44 per month for insurance.
How? I don’t have comprehensive or collision insurance. In the incredibly unlikely event where something happens to my car, I’ll happily buy a cheaper $5,000 used car off of CraigsList.
Get only liability insurance. If I damage someone else’s car, Geico will step in for me.
That’s all you need.
Sidenote: I’m very curious about this new startup, Metromile. Their insurance is pay-per-mile. Since I barely ever drive, this could be interesting and even cheaper than Geico. I’ll keep you updated in case I switch.
Health Insurance
Oh boy, here we go.
Health insurance is a tough subject. Besides, until our president delivers the amazing health insurance he promises, there is no one size fits all.
But, what I can do is say what I think is a good strategy for me, and you can decide whether or not it works for you.
So, here goes.
- Have a low body-fat percentage (which reduces all sorts of health risks) and stay active (which will keep you healthy for the long-term). This way, I only need health insurance in the case of a disaster that would cost over $10,000 in bills.
- Don’t smoke.
- Pay for my own bills (I only need one doctor checkup per year). I suggest you do the math, you might find it’s cheaper than having an expensive health insurance. Unless you have a pre-existing condition of course (or a baby on the way).
- Compare plans. I really like GoHealth.
- Don’t smoke.
- Unless I love my job, I’d happily pay for my own insurance. This really depends on the individual. Personally, I find that the fear of leaving a job because I’d lose health insurance coverage would cripple me (I’d be afraid of finding another job or starting my own business). Since I love my independence, I find it’s a better idea to pay for my own insurance.
- And finally, don’t smoke.
Just as a small extra to save money, I heard from Mr. Money Mustache that you pay less at Walmart’s pharmacy than at Walgreens. I haven’t confirmed it, but I will.
Sidenote: I do love startups. I also love bringing attention to good people trying to deliver great products and services. For this reason, I suggest looking at this new health insurance startup, Oscar. Maybe you will love them too.
Home Insurance
I don’t have a home so I took this from Mr. Money Mustache.
“Get the highest deductible on your house insurance that the mortgage company will allow. Or if you have no mortgage, the highest you are comfortable forking over after an incredibly unlikely event (I usually set mine at about $10k).” — Mr. Money Mustache
Sidenote: Again, I like supporting startups. Lemonade is one that has popped up several times on the interwebs. Their Renters Insurance starts at $5 per month and their Homeowners Insurance starts at $25. Give their website a look.
Life Insurance
This sounds like a silly insurance.
You’re trying to tell me that there’s an insurance that says “pay us every month! If you die, we will pay money to a dependent of your choice”??
Nonsense.
If you’re worried about what will happen to your loved one after your death, get a living trust. LegalZoom can help you, starting at $249 here.
That way, if you die your assets will go to your dependent. Those assets are enough to support them.
There’s no need to give your dependent a reason to kill you.
And that’s it for today!
Today, we saw:
- An overview of insurance.
- How insurance companies make so much money.
- When you should get insurance.
- And a few tips on car, health, home, and life insurance.
See you next week (follow the series here to be notified).
Be well.
R
Thanks for reading! 😊If you enjoyed it, test how many times can you hit 👏 in 5 seconds. It’s great cardio for your fingers AND will help other people see the story.You can follow me on Twitter at @richardreeze to find out whenever others just like it come out.📚 Do you like books? If so you might enjoy my latest obsession:
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Since I write about finance, legal jargon is obligatory (because the guys in suits made me). Before following any of my advice, read this disclaimer.
