Over Insured Society
In order to become financially independent and retire early, we must look at all of our expenses and optimize them to the fullest. Insurance is no exception.
The first insurance contracts can be traced back to early Chinese and Babylonian merchants who would spread the risk of a total loss of wares by spreading goods among the ships traversing uncalm waters. Today the insurance industry has spread into many niches of our society. Insure your legs, your pets nails from breaking, etc.. Are we over insured???
I am a hypochondraic, who thinks the world is going to end on March 2nd, 2014. Everyone is a horrible driver on the roads and a shark might kill me if I take a swim in the ocean. I will probably get hit by a bus before the world ends, but I better be insured just the same. I insure for the worst case scenario and even have earthquake insurance on my house even though there has never been one here in recorded history. I chose my current credit card with the $95 annual fee because if I die in a plane crash my husband will receive the $10,000 death benefit; oh wait, he is sitting right next to me.
I am healthy and invincible. Medical insurance is for old sick people. My profession should have been race car driving as my navigation skills are impeccable. I don’t have homeowners insurance on my paid off house as it will never burn down as I don’t smoke. I never let anyone walk in my yard so no one will ever get injured on my property. I will always have enough money to self insure against any risk.
Striking a Balance
Hopefully you fall somewhere in between these two characters. You probably have a mortgage on your house and have a sufficient fire policy with adequate coverage. Your two cars are insured against loss and you are most likely not much of risk taker. You file an insurance claim every 8 years on average for a small house fire or auto accident. You drive back and forth to work Monday – Friday, shuttle the kids back and forth a few times to activities during the week, and hit the grocery store on Sunday and stock up for the week (No sky diving for you). Your employer pays half your insurance premiums and you are sufficiently covered for that broken bone.
Outside of these basic perils, I don’t see much need to participate in risk minimization for much of the other insurance that get’s peddled in society. The following is a list of insurance my family does not purchase and the reasons why.
Full coverage auto insurance (Our Honda Civic and Toyota Prius are paid off, and in the event of a total loss on the vehicle, we will purchase another used one. Calculate the premium difference for yourself, and run the numbers on your vehicles)
Life insurance (My wife might kill me (just kidding) if one of us dies, our investments keep paying out in excess of our annual expenses regardless if the other spouse is around)
Accidental death and dismemberment (When I was sitting in a cubicle a few years back, the threat of a fallen computer monitor killing me was isolated)
Renters Insurance (When we rented a house or apartment over the years, we felt as though, we would replace our lost clothes, TV’s, etc. if we ever had a theft or loss)
Widget Insurance (We don’t purchase many widgets)
Burial (My wife and I are Air Force veteran’s and have some benefits to help defray the cost of our cremation)
Remember Financial Independence can be had by reducing expenses and increasing investments. Take a look at your own insurance needs and see if you are over insured. Could you scale back coverage, or drop a policy completely? When you spend less on insurance, you are able to pay down any debt and save and invest to reach financial independence and early retirement. I am not advocating dropping your insurance, (make sure you feel comfortable with your protection), but don’t always assume you need every type of insurance your company offers at that annual insurance enrollment period, or when your insurance broker calls to review your policies. I can assure you, the world will not end on March 2nd, 2014.
Remember; pay off that debt, save and invest the rest, and join us on the other side and retire before you are dead.