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Spoonbill

Things to insure, things not to insure

Interesting article Bottom line looks like, If your cost is predictable, you don't need insurance, you can just budget for the expense and pay it yourself.

Insurance is all about spreading the risk. A bunch of people buy insurance against the risk that a few of them will be the ones who get hit with a big bill that they couldn't pay. The model works fine for house fires and car crashes. However, it's a terrible model for ordinary, predictable expenses. Here's some tips on picking what to insure and what not to insure.

The basic rule for all kinds of insurance is: Bear the risks you can afford, insure the ones you can't.

The key point is risk. There's no point in insuring your predictable expenses, even if they're large. For example, around here homeowners need to pay their property taxes twice a year, and each payment is pretty big. But there'd be no point in "property tax insurance," because there's no risk to spread around--the insurance company would have to charge a premium that added up to what you were going to pay in property taxes anyway (plus enough to make a profit).

Two fairly common kinds of insurance that fall into this category are dental insurance and optical (or vision) insurance. To the extent that they cover the cost of checkups and basic care (fillings, new glasses), they're really just paying for routine expenses that you could easily budget yourself.

There are two reasons why it's better to budget these things yourself rather than buy insurance for them (although they both come down to the insurance company's profit).

First, it's cheaper. The insurance company makes its profit by charging more in premiums than they expect to pay out. If you just pay the expenses yourself, that's all you have to pay. (The insurance companies also pick up a little interest by holding the money between when you pay the premium and when they pay the claim--which is interest that you could be making, if you budgeted for the expense yourself and set the money aside until you needed to pay for the dental exam or the new glasses.)

Second, you're not vulnerable to capricious insurance company decisions about what's covered and what isn't. If you keep your money, you don't have to go to the insurance company and ask if they'd please give some back to pay your claim. After all, the other way the insurance company ensures its profits is to deny claims. They do that mainly by having complex rules that they constantly change.

For example, I used to always get my teeth cleaned in June and December. Then my dental insurance switched from covering two cleanings a year to covering one every six months. Having gotten my teeth cleaned in late June, it was impossible to schedule a December cleaning--the first half of the month was out, because it wasn't six months later, but with the holidays, there weren't any regular cleaning appointments left in the second half of December. So, my next appointment ended up being in January--after which, of course, I couldn't schedule my next appointment in June at all. Never mind that I'd been getting my teeth cleaned in June and December for 30 years. (A few years later they changed the rules again....)

There are similar rules for glasses. They'll cover frames, but only medium-priced frames. They'll cover lenses, but not the charges for over-sized lenses or progressive bifocals. They'll cover an anti-scratch coating, but not an anti-reflective coating. If you happen to want just what they'll pay for (and not want the stuff they won't), you can get full value--but you can do that by just keeping your money and buying your own glasses.

Of course, there's one big exception to all this: If someone else is paying. If you're getting optical or dental insurance as part of your employee benefits, it may well be a good deal. It's still a silly way to pay for getting your eyes examined or your teeth cleaned, but if your employer will give you a couple hundred bucks a year to do that, but won't just give you the cash, then you might as well take it. (And, of course, there are plenty of kinds of insurance that's worth buying: life insurance, health insurance, disability insurance, car insurance, travel insurance, etc.--because they cover the risk that something bad will happen.)

If it's coming out of your own pocket, there are two key questions:

Is there a risk? If your cost is predictable, you don't need insurance, you can just budget for the expense and pay it yourself.

Is the risk substantial? A small risk you can bear on your own--you don't get insurance to cover the risk that you'll drop your groceries while bringing them home, because it's a risk you can afford to take.

If there's a risk, and if it's big enough that you can't bear it on your own, then insurance is the answer. Otherwise, just budget the expense and pay it yourself. You not only get to keep the insurance company's profit, you make sure that you're the one deciding how to spend the money.

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Interesting.  I'm looking a lot closer at stuff like this now that I'm retired.  I have a friend who believes strongly in the whole house "warranty" that covers all the appliances in his house.  I have always felt that those are insurance for people who could not come up with the money for a large repair on short notice but accept that insurance costs more in the long run. 

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Looks to me from a financial stand point,  that you should insure the things that if lost would change you standard of living. I don't worry about something going out or breaking. Try to get the best value and quality when buying. I know some people are more into what if this happens and try to relieve the pain by insuring against it. My wife for a few years worried about breaking down in her car and carried AAA for a few years. We have had 3 to 5 cars for years.In the 55 years we have been married, none have been towed or hired serviced on road. We also have three properties that we live in and have not filed a claim yet. Love to have all that home owners insurance back but would be in a bind if I lost one of them so I insure them. Now that we are so mature, I would would not even think about doing without health insurance.

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I have never thought to extend a warranty on a new appliance purchase, I figured it should work or they will be out of business, I just had to buy a generator from Harbor Freight, I've purchased tools from them all the time, but never a big ticket item from them. Well, I did purchase the extended warranty because I was not sure how many 220 volts I needed to drive the deep well pump, and the manager told me if anything caused the generator to fail in 2 years, just bring it back, no questions asked, and, if the size I bought is too small, I can return it for the next size up.

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I have never thought to extend a warranty on a new appliance purchase, I figured it should work or they will be out of business, I just had to buy a generator from Harbor Freight, I've purchased tools from them all the time, but never a big ticket item from them. Well, I did purchase the extended warranty because I was not sure how many 220 volts I needed to drive the deep well pump, and the manager told me if anything caused the generator to fail in 2 years, just bring it back, no questions asked, and, if the size I bought is too small, I can return it for the next size up.

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You should be OK if the breaker on pump is less or same as the breaker on generator. If you have information on pump if should list the amps required for pump. I believe generally 1 hp 220 volt water pump requires less than 10 amps. or 2000 watts.

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16 hours ago, Spoonbill said:

Looks to me from a financial stand point,  that you should insure the things that if lost would change you standard of living. I don't worry about something going out or breaking. Try to get the best value and quality when buying. I know some people are more into what if this happens and try to relieve the pain by insuring against it. My wife for a few years worried about breaking down in her car and carried AAA for a few years. We have had 3 to 5 cars for years.In the 55 years we have been married, none have been towed or hired serviced on road. We also have three properties that we live in and have not filed a claim yet. Love to have all that home owners insurance back but would be in a bind if I lost one of them so I insure them. Now that we are so mature, I would would not even think about doing without health insurance.

Glad to hear you're not "crying" about how you shouldn't have to pay future premiums because you haven't had a claim in the past.  I hear lots of people complain about that.  Odds of a loss don't change based on lack losses in the past just like heads on 37 coin flips doesn't change the fact that #38 still has 50/50 chances of being heads.  If you figure you need to insure you write the check and send a prayer up asking Him to please let that be a waste of money.  Filing a claim is a loss - you don't get 100% back and you have a lot of hassle filing the claim.  And if you're real lucky nobody got hurt and nobody got dead.  The only way to "win" with insurance is to never have to file a claim.

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.Never thought of it that way, I believe you have something there.

 

I like your signature. I think that my apply even if a man is not great.

Behind every great man is a woman rolling her eyes.

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1 hour ago, Spoonbill said:

 

.Never thought of it that way, I believe you have something there.

 

I like your signature. I think that my apply even if a man is not great.

Behind every great man is a woman rolling her eyes.

My says she has never rolled her eyes over me.  :D

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1 minute ago, Pokey Joe said:

My says she has never rolled her eyes over me.  :D

I suspect that is FAKE NEWS.

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Not being great she hasn't had to roll her eyes.  She shakes her head a lot though ...

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Love the insurance commercial where the guy drops the tree on building and at end he is getting ready to weld or something and she has that rolled eye look.

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Interesting premise that insurance is a bad deal because the insurance company makes money from it.  That logic says groceries are a bad deal because grocers make money from it, cars a a bad deal (whether new or used) because the dealer makes money from it, houses are a bad deal because the seller makes money from it ...

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