Comments on: Saving More vs. Insuring More

By: How to Mesh Principles and Non-Traditional Finances — Untemplater

How to Mesh Principles and Non-Traditional Finances — Untemplater — Thu, 18 Feb 2010 12:02:09 +0000

[...] because we often struggle with choices that seem to compete with one another. For example, do you save more or insure more if given the [...]

By: Wojciech Kulicki

Wojciech Kulicki — Thu, 23 Jul 2009 16:05:14 +0000

Thanks Cindy. It seems that a lot of people have had luck with the same type of insurance policy as yours.

I’m curious to see what results of the current health care debate in Washington and how that will affect insurance in the U.S…

By: CindyS

CindyS — Thu, 23 Jul 2009 12:49:43 +0000

While I am uninsured at the moment it is not because I don’t value insurance but because there is just no room in our budget for it. The last insurance policy that I had was a high deductible policy and I put money into an HSA to cover the deductible. It was the best of both worlds. Yes, I had to pay for any doctor’s visits during the year but the cost came out of my HSA. Since I don’t go to the doctor often, most of my savings stayed intact in a tax free HSA account. It is the policy that I would choose again.

By: Wojciech Kulicki

Wojciech Kulicki — Wed, 15 Jul 2009 17:23:03 +0000

I’m totally down for cost-benefit and we are thinking alike. However, your comment made me realize that I think, in the end, most cost-benefit analysis will yield similar results. Think about it – lower premiums mean less of a chance that something is likely to happen. Higher premiums reflect a higher probability.

So if probability of occurance (i.e. “risk”) is usually tied to premium price, the cost-benefit is already built into it, don’t you think? In other words, you pay “per probability” of event X happening – the task remains dedicing which “events X” you want to be protected against.

Okay, so that’s a perfect world. I think in the end, public preception of an insurance’s value, market conditions and semi-monopolies, and different profit and overhead requirements of companies affect the real price of insurance. And that’s a much bigger headache to try and decipher…

By: Wojciech Kulicki

Wojciech Kulicki — Wed, 15 Jul 2009 17:02:06 +0000

That’s a great point for the “save more” camp! Insuring can, in fact, protect those savings you’re trying to grow so quickly. Again, I think balance is key in deciding how much protection to get and if it’s worth the expenditure.

By: Wojciech Kulicki

Wojciech Kulicki — Wed, 15 Jul 2009 17:00:45 +0000

The car is a perfect example. Most people’s deductible is about $1,000 anyway – so unless I’m missing something, if your car is worth $1,000 or less, you are getting nothing. Far better to save in that case and put the money to good use!

By: Craig F.

Craig F. — Wed, 15 Jul 2009 13:34:33 +0000

The great thing about insurance is that your savings plan has a higher likelihood of success if you are properly insured. Sure it might take longer to reach your goal if money is going to insurance rather than savings, but at least you know you will reach your goal. If you skimp on insurance you may find yourself financially behind after a few years if there is an unexpected incident along the way.

By: Jason Unger

Jason Unger — Wed, 15 Jul 2009 13:27:00 +0000

While this post mostly dealt with health insurance, it’s always worth checking to see if your other insurances are really worth it.

For example, we were paying an extra $400/year for collision insurance toward replacing our 10 year old car that’s only worth around $1000. If the car becomes mostly unusable, we’re going to have to shell out the cash for a new one anyway – so having that extra money to save toward that makes more sense than insuring against it.

By: Peter

Peter — Wed, 15 Jul 2009 12:59:15 +0000

As you mentioned above, I believe you have to do a bit of cost benefit analysis for your situation and figure out whether or not it makes sense of you to save up and self-insure, or if it makes sense to pay monthly premiums to insure.

When you pay for insurance you’re basically paying to transfer the risk of having a catastrophic event to another party. If that event happens, you won’t be financially ruined. In many cases the cost of that insurance coverage is minimal compared to the possible charges you could have if you didn’t have coverage – like in my wife’s case with our medical coverage. On the other hand, some types of insurance may not be as important, and if the event it’s insuring happens, it might not ruin you, it would just be a nuisance. For example if you’re driving an older car with only liability insurance. The car isn’t worth that much, so insuring it to replace it in the event of an accident doesn’t make financial sense. You can probably just save up and pay for a new car. You can afford to self-insure.

Analyse your situation, decide what level of risk you’re comfortable with, look at your financial situation, and decide based on those things. Great discussion!

By: Personal Finance Buzz

Personal Finance Buzz — Wed, 15 Jul 2009 12:03:53 +0000

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