The Minimalist Insurance Policy

How much have you paid in insurance premiums over the course of your life?  Vehicle, health, home, business, life, and a whole slew of other insurance types are seemingly essential today. Insurance marketing has become so embedded in our cultural expectations it seems outrageous to have low or no coverage.  It makes one wonder how our ancestors managed to live, travel, and be healthy without the financial bailout from an insurance company.

I could postulate our ancestors’ only owned essentials and didn’t have nearly as many items to replace in the event they were destroyed.  Or I could theorize we no longer assist our neighbors in a disaster; instead we deal with life’s blows alone, and thus we need support from an insurance company.  Or I could suggest insurance companies marketed their product so well we now believe giving a hefty percentage of our salaries to insurance is non-discretionary.

How much have you actually benefited from your insurance policies?  Potentially you’ve hedged your bets safely: maybe you like building your house in a flood zone, or on a hurricane-prone beach, or tend to drive your car into something every few years.  However, it is more likely you’ve rarely filed an insurance claim, and even when you do you still have to pay a $500 deductible for a $1,000 repair, for example.  Wall Street financial filings reveal insurance companies are making money hand over fist; and chances are they’re making money off you!

Stop freely handing insurance companies your money and instead hedge your own bets.  The money you can save by cancelling unnecessary policies and increasing the deductible, increasing cost sharing, and decreasing coverage amounts will quickly add up to cover most claims that you would have had to make previously.  As a bonus you save yourself the stress of dealing with the bureaucracy of a large company.

I recommend you only maintain coverage where it is required by law, for coverage amounts that will truly decimate your financial assets, and increase your deductibles and cost sharing.  Do some thinking to determine how much risk you can honestly handle. Experiment with your insurance rates; many companies let you see an updated rate online without actually changing the current policy.  After you make the changes to your policies, the key is to be diligent about setting the newfound-savings aside in an easily-accessible emergency fund in case you do have to cover yourself. 

The objective is to shift risk for small “claims” to you, while the insurance company provides financial security for large claims.  This is especially conducive for people that don’t have family obligations (who needs life insurance if you don’t have children), don’t have expensive things to insure (aka…a brand new car), and don’t lead extremely risky lives (less chance you’ll end up in the hospital if you spend your time walking on the beach versus racing motorcycles).  A side effect occurs after the burden of risk shifts to your personal bank account: you just might be a little more careful where you choose to live, what and how you choose to drive, and how many things you want to replace when they are destroyed. 

Extra tip:  After you shift towards self-insurance, depriving the insurance companies from your hard-earned dollars, do a double-down and invest your cash in insurance companies’ stock.  Let them work for you while you sit back chuckling as the business model you escaped from now makes you money.

Bottom Line:  Break the insurance companies’ risk-reward equation and buy as little insurance as you need, instead choosing to protect yourself only from life’s most catastrophic losses.  What you’ll save by lower premiums will eventually cover your smaller claims, plus you get to keep what would have been somebody else’s profit.

Did you find this post interesting?  If so, check out our website at www.minmylife.org.  If the subject material of this blog post caught your attention, I recommend reading our post on Minimalist Kitchen Essentials.

 

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