What do you self insure?

August 26, 2010 · 33 comments

If you’re like me you pay a pretty penny each month for insurance. Health, dental, vision, car, life, renters, it seems like the policies never stop. Although I don’t mind paying for the peace of mind, I’d be lying if I pretended I was excited about the expenses. This is why I have a goal to self insure many aspects of my life. Here are a few areas I’d like to cover…

Electronic purchases:

I was a sucker for purchasing “extended warranties.” While I thought I was being responsible for doing so, I’ve come to realize that is hardly the case. Come to think of it, I can’t ever recall being able to take advantage of an extended warranty. This makes sense when you think about it. Take for example Apple Care. For $160, you get two additional years of coverage. Do you think Apple would sell Apple Care if their products typically failed within that time frame? Heck no they wouldn’t. They sell the policy because they know the chances of your device breaking down is highly unlikely, not to mention that it only takes one accidental dent/crack/chip to completely void the warranty.  I’ve bought extended warranties on every Apple product I’ve purchased, but have never once had to use them. Next time I’m offered an extended warranty I will politely decline, knowing I have the liquidity to cover any repairs if need be.

Our Cars:

Girl Ninja brought a 2005 Toyota Corolla to the marriage. Last week I was calling to get quotes to add her to my insurance policy. Since she owns her car outright, I toyed with the idea of not paying for the comprehensive and collision insurance. This means if she crashed in to another car, our insurance WOULD pay for the damage caused to the other vehicle, but it WOULD NOT cover any repairs necessary for Girl Ninja’s car. I “Blue Booked” the value of her car and saw it should sell for about $8,500. Although we have the funds to completely replace her car, we decided the small premium increase is worth it to add comprehensive and collision coverage. Once her car drops to around $5,000, then we will probably drop that coverage and self insure and damage that may be caused.

My life:

Right now I can get a $1,000,000; 20 year level term life insurance for about $30/month. I see that as a completely fair trade, but as I age my insurance premiums will increase, or even worse I may become ineligible for life insurance if I develop some serious health issues. This means I have 20 years to build up a large enough Net Worth so that my bank/retirement accounts become their own life insurance policy. If I have enough liquidity, Mrs. Ninja can rest easy at night knowing that even if I am uninsured, she will still have adequate resources to carry on without me.

That said, there are a few areas I will probably never self insure in…

Renters Insurance:

It’s soooo cheap. I pay like $10/month for $30,000 worth of coverage through AAA. It’s honestly my favorite insurance because I pay the whole year up front ($120) and have the peace of mind knowing my place can get robbed at any moment and I will be taken care of.

Health Insurance:

While I hope one day to have a small fortune, I don’t know if I will ever be wealthy enough to self insure my medical expenses. For example, Dad Ninja got in a pretty gnarly motorcycle accident two years ago where he almost lost his leg. After multiple skin grafts, a muscle transplant from his back, two weeks in the hospital, a few months in a wheelchair, and two years of physical therapy he is finally getting back to normal. While I don’t know the total cost of this entire process (probably close to $500,000 in medical expenses), I do know how much  the first night in the Emergency Room cost him…$94,000. That’s freakin’ crazy. He wasn’t in this small hospital for more than 12 hours before being transferred to a larger hospital, but he left with a medical bill of nearly $100k. Suddenly my health insurance premium doesn’t sound too bad.

There are about a billion other things one can choose to insure, self insure, or just flat out ignore. Homeowners insurance, umbrella insurance, ALIEN ABDUCTION insurance (it really exists!) to name a few. Are there any areas of your life you “go it alone” and self insure? Where do you ALWAYS plan to pay the premium?

{ 33 comments }

1 Angela

ugh! I am such a sucker for electronic purchases!!

2 Продажа 1С

Yeah, Angela, the same thing with me! We’ve a lot of electronics and I don’t have time to learn all))
Thank you for this post!

3 Josh

You talk about your Renter’s Insurance saying it allows for piece of mind if something were to happen – Apple Care is the same thing. Example, say my iPhone just dies. That was a $400 investment. Applecare is only $79. I know that if something happens to my iPhone (with the exception of me doing something stupid, like throwing it in a pool of water) it’s covered. For three years. Cheap. Another example, my parents have a 52″ TV. The video card in the TV was dying causing white lines across the screen. They paid the $100 for the extended warranty – someone came to the house, fixed it, and now it’s back to new. New 52″ TVs are several hundred dollars, by spending only $100 they’ve saved themselves even more money.

There are a lot of products you can probably get away with not buying an extended warranty for, but major purchases (TVs, Computers, etc..) I don’t see why spending an extra $100 is bad for the same piece of mind you get with the renter’s insurance.

4 Larry

Your renter’s insurance, however, may well cover the replacement cost of that iPhone. But I would disagree that that $79 extended warranty is cheap. You’re paying 20% of the purchase price on a relatively low-cost item. Once you get to an item that costs far more, you might consider the warranty, but I would check a source like Consumer Reports to see if the frequency of repair record justifies the outlay. I have to take the position that the manufacturer would not offer the insurance at that price unless it were to their advantage rather than yours.

When buying insurance on your possessions, the main thing is to cover yourself for replacement cost rather than current value, which is always depreciated. And then keep an inventory of your possessions – it can even be a set of digital photos – along with your receipts in a safe place in case you have to make an insurance claim.

Remember too that your policy covers your possessions whether they are kept in your home or away from home, and that unreimbursed losses from casualty or theft may be deductible on IRS Form 4684/Schedule A.

5 PunchDebt

As Larry pointed out, you pay $79 on a phone that cost you $199. That is a pretty large percentage of the purchase price. Renters insurance is worth it to me because I pay $10/month for $30,000 worth of coverage…a much lower percentage. To each his own though. If you see Apple Care as a worthy expense by all means go for it, but I have an iPhone, a Macbook, and an iPod and have never had to take them in for repair.

6 Larry

You may be *required* by your lease to carry renter’s insurance.

7 Alex

Howd you pay $400 for an iPhone? Aren’t they $199? And how is a cell phone an investment?

8 Ken

I assume that’s the unsubsidized price — which is what you’d have to pay to replace your phone if it broke (and you weren’t past your contract date and able to get a new one a the subsidized price again).

9 dogatemyfinances

I totally disagree about the life insurance point. Sure, you hope you have 20 years to save, and if you do, great. That’s the point of life insurance, shifting risk. (And premiums don’t change on term policies once you sign up. I suggest you do some more research.)

This is a different discussion if you consider you are insuring for your whole lifetime of income or your wife’s whole life of income. $1M probably won’t even cover it.

It is also a different discussion if there are children involved and mortgage payments that you couldn’t shoulder on one income. If you are planning on having children or a house, I think you both really need life insurance, given your current net worth unless you have a good policy through work.

10 PunchDebt

I know my life insurance premium wont increase over the next 20 years. But imagine if 19 years from now I am diagnosed with cancer. I wouldn’t be able to find a provider to reinsure me once the 20th year has passed. I’m not saying I will be able to self insure myself for life insurance, but I think it’s a good goal to try :)

11 dogatemyfinances

Wow, you really have no idea how insurance works. They can’t drop you in the 20th year, that’s pretty much the point. You don’t get “reinsured” every year. That’s why you buy it now before you have cancer and lock in for 20 years.

That’s also why you only buy a 20 year policy because if you don’t get cancer and you have 20 years and you self-insured, then you are fine. You just need it for that gap.

You need to read more because you have no idea what you are talking about, especially if there will be kids involved.

12 PunchDebt

I think you are misunderstanding me. Or I’m doing a crappy job communicating. I know a 20yr term policy locks you in for 20 years. Let me break it down….

I’m 25 right now. Let’s say I buy a 20 yr policy.

At 43 I am diagnosed with cancer. If I die before I turn 45 everything is fine since I’m still covered. If i live to 46 though, it will be darn near impossible to find someone that would be willing to renew my policy with a cancer diagnosis.

By the way, if you have any criticism please try and be constructive and not so demeaning. Belittling doesn’t accomplish much.

13 Lysander

It seems to me that dogatemyfinances is getting caught up in you saying: “As I age my insurance premiums will increase, or even worse I may become ineligible for life insurance if I develop some serious health issues.”

The point that you were trying to make is that for each year you wait to take out the policy, the premium for the term will increase because of your age and at the end of term you may not be able to take out another term policy depending on your current health and/or physical condition.

You were unfortunately not very clear with your original post, but your responses have clarified what you were trying to say.

14 Anonymous

My brother-in-law designed a website for an organization that sells zombie insurance. When the Pandemic hits, their extraction teams will get policy holders to established safe zones. Apparently.

15 Budgeting in the Fun Stuff

I don’t know what’s sadder – the fact that zombie insurance exists or that I actually have a close friend who would totally purchase it if he knew (like in a heart beat since he is positive that zombies will take over someday…). I’m not telling him since his wife would kill me.

16 Sandy L

Cool. How much is it. If it’s like $5, I’d totally buy that as a Xmas gift.

17 Budgeting in the Fun Stuff

That’s a great idea! Xmas gift for Mitch would be taken care of!

18 Budgeting in the Fun Stuff

Ooh, I found it – it’s $10 for a lifetime of zombie coverage for your stuff. :-)

19 psycharah

Zombie insurance…well…hadn’t thought of that one…I think I’ll take my chances though…

I pay a ton of insurance-house, cars, life, disability, malpractice… I consider myself lucky that I’m in Canada and have health insurance covered.

I consider the disability the most important, because if I have to live my life without the ability to work, I don’t want to be destitute while dealing with a disability. In my line of work, I see this kind of thing happen all the time, unforunately. On top of the stress and strain of injuries and chronic illnesses, many of my clients are financially tapped, which adds a whole other level of chaos to their lives. This insurance is pricey, but it could potentially be worth a lot more than my life insurance policy if I got disabled tomorrow and they had to pay my wage for the next 35 years of my working life.

20 Madison

I’m a huge fan of self insurance. We do so for everything small, cell phones, appliances, home warranties, etc.

I would also do so for dental and vision, but we have phenomenal health insurance that covers it all for dirt cheap.

As far as car insurance, I self insure on comp and collision once the cars reach the (annual premium X 7 + deductible) is greater than the value of the car. Statistically, you’ll have a car accident every 7 years, so the formula works for me.

21 Jared

In general I agree about not buying extended warranties on electronics. However, I always by a 3-year warranty at the very minimum for my laptops. Every laptop I’ve owned has had a hard drive fail, or multiple battery failures, or worse. I take my laptops to work, on vacation, etc., and even though I take good care of them they still take a fair amount of wear and tear. My warranties on these have always more than paid for themselves.

Similarly, with my renters insurance I added on extra laptop coverage so that my laptops are insured for virtually everything (exceptions being acts of war, volcano eruptions, and the like… yes, I checked). I ran the numbers, and if my husband and I use the coverage once every ten years then it pays for itself. And given that my husband dumped a bottle of Windex on his computer one day (don’t ask), we’re very glad that we have this coverage.

22 Alicia

I love MAC products but buy my laptops at Best Buy. They have a 3 year accidental coverage warranty. It means they also cover it if you drop it, spill on it or break. The only thing not covered is theft. My roommate stepped on my computer and they replaced it… I’ll be buying my laptops there for life!

23 Jessie

Jordan and I are lucky because we have some great short term and long term disability as well as Accidental Death & Dismemberment insurance coverages through work. We also have steller health care/dental/vision ect. through work.

I think once kids/homes are involved we’ll have a closer look at the coverage – but for now, it works for us.

We defn. don’t pay for electronic ‘warranties’ as their tends to be a lot of loop holes preventing you from using them.

24 Budgeting in the Fun Stuff

We self insure all of our electronics (although our Discover does add one extra year of warranty for free). I also only pay liability on my $4500 car.

We pay for full coverage on my husband’s Prius even though it’s paid off since it’s still worth $12,000 according to KBB. We currently pay a couple of dollars from each paycheck for $100,000 life insurance policies on both of us (enough to cover the house and 1 year of expenses). We will self-insure in regards to life insurance as soon as the house is paid off probably (we don’t have kids and we both could pay all the bills on one small salary).

I will always pay for health insurance, short and long-term disability while we work, and homeowner’s/flood insurance. We may self-insure on absolutely everything else.

25 Ted

I am all about apple care. Our macbook pro went through three major repairs a month before the warranty ended: New hard drive (which they updated to more memory and snow leopard), new power cord, and completely new casing. Pretty much got a whole new laptop for just purchasing apple care.

26 Techbud

I’d suggest Mrs. Ninja’s wedding or engagement rings. My house was robbed a few years back and we lost my wife’s engagement ring and came to find out our home owners insurance did not cover it.

27 Larry

Did you deduct this loss on your tax return? If not and the loss was within the past three years, you might be able to file an amended return if you were able to itemize your deductions that year (or if not, the loss now qualifies you to itemize).

28 Sandy L

Ninja, I find your logic interesting, because as my net worth has grown (I’m almost 40 now), I actually am leaning towards insuring more things, not less.

I never used to do long term disability or any of that. Now I’m maxing my life insurance and even thinking of a additional life insurance policy as well as umbrella insurance. As your net worth grows, you have more to lose in the case of illness + death, etc. Plus, once the whipper snappers come along you have to think of them too.

29 Free Money Articles

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30 eemusings

I will always have third party car insurance and contents insurance as well.

Live in NZ, so don’t need health insurance.

Personally, I don’t think I’ve ever bought an extended warranty on electronics. My dear mother thinks they’re a waste of money, and I’m inclined to agree.

31 Ryan@theFinancialStudent

Also remember that most credit card companies automatically double the standard warranty on products you buy. I believe Ramit from iwillteachyoutoberich.com had AMEX or Visa pay for a brand new MacBook Pro a while ago once the Apple warranty expired.

To me, it seems silly to buy AppleCare for an iPod or iPhone. Neither of those devices are necessities & their value isn’t extreme.

32 Emma

I know what you mean about the health insurance. My husband had laproscopic shoulder surgery in March of this year. Final cost for an out patient procedure? A cool $35,000! Luckily we have health insurance through his work (he’s a teacher), and it comes out of his pay before we see it in our bank account. We consider ourslves very blessed.

33 Louise

the most important thing to insure if your income. After paying income protection insurance for quiet a few years I missed a payment and wouldn’t you know it, ended up sick and unable to earn an income, it’s changed my perspective on a lot of things. So for me, it’s insurance on the income, the house, the car and the rest is optional.

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