Yesterday I had a refreshing reminder on why I carry car insurance. I was pulling into a parking spot and was about half way in when the car that was partly in front of my vehicle started to pack up. I slammed on the horn and luckily the driver stopped. My car had no damage, but it was a close call since I had less than six inches of room to spare.
I consider myself a fairly good driver given my age. By virtue of several of my jobs over the years I’ve logged more time behind the wheel of a vehicle than I care to admit. Yet at the same time I’m aware I’m not perfect I can screw up. So if I can screw up then the average driver is much more likely to screw up, hence I better have some insurance to protect myself from other people’s stupidity. The same goes for life insurance and house insurance. I’m not so worried about my wife or me setting fire to the house, but I am concerned enough about my two curious boys to not leave out matches near them.
I think insurance is highly underestimated how critical it is to your overall financial well being until you are making a claim. At that point you are likely damn happy to have it and glad you have been paying premiums for years. Now some people would question isn’t that a waste of money to pay premiums? No, in my mind I’m not wasting the money. I’m paying someone else to take on the risk in my place. I’m getting a service for my money and I’m happy to send them a cheque for it. If they can make a profit on it, so be it.
On the other hand I firmly believe insurance should be used reasonably. Insurance in my mind is for those high cost items that could wipe me out financially speaking, not for every little thing I buy at the electronics store. It is very possible to have too much insurance and then be wasting money. One way to reduce your insurance costs is to keep your deductibles on the large side and self-insure for those minor items in life.
For whatever reason life insurance tends to be a common one people go over kill on. In my family’s case both my wife and I carry $500,000 policies at the moment. That number was chosen for both of use to have enough money to finish raising the kids and pay off the mortgage. It’s also income replacement for me and childcare replacement for my wife. Now that I’m on a campaign to kill off the mortgage that value will likely come down by $100,000 in the next two years. Then as my saving increase and we are less dependent on my future income we will continue to drop the insurance value down. There really isn’t a reason to have life insurance once you are financially independent since your income comes from your savings and not you.
So when planning for other people’s stupidity make sure you don’t start going stupid yourself. Use insurance wisely to cover those huge “Oh my GOD!” events and suck up the “Oh, shit” minor events. And of course, be prepared to use your horn to stop stupid people from hitting your car.