Consumption Rebellion
Hello everyone,
Readers of my personal blog will know that I am currently on a drive to re-building my nest egg. See, I once had a very healthy nest egg until about 3 months ago...and then I lost 90% of that nest egg.
I lost it as a result of a frugal mistake - a very poor attempt at self-insurance...
Have you ever wondered if it was worth insuring? I have. Especially car insurance.
As a bit of a background - here in Australia, we have compulsory third party insurance. This insurance covers any costs incurred by a person who may have been injured or died as a result of my negligent driving. While this insurance is good, it does NOT cover damage to vehicles. For that I would need additional cover - for many Australians this additional cover takes the form of "comprehensive insurance". This would cover damage to vehicles, tow truck etc etc.
Now, I've been on the road for 16 years now and I've never had to claim against my comprehensive insurance. For 16 years, I drove and paid for comprehensive car insurance and wondered...what if I just put money aside instead of paying insurance?
Then in recent months, with so much going on in my personal and work life, I just let it...lapse. I set aside the money for comprehensive car insurance in my "nest egg" account and forgot all about it, fully expecting that nothing would happen (as nothing happened in 16 years).
And of course, it did. Three months ago, I hit another car. It was dark and raining heavily. Three cars ahead of us, one of the cars suddenly braked (not sure why). I was behind another car and didn't really see it happening. All I know is that suddenly the car in front of me touched his brakes then swerved wildly on to the large median strip in the middle of the road. I panicked and hit my brakes *hard*. Bad move. This just 'caused my car to lock up in the wet weather and I slid out of control and into another car.
No one was injured - thank goodness. However, the damage to my car (above) was over $3,000. The damage to the other car (which I was fully liable for) was about same.
Now if I recalculated my car insurance. If I had continued to pay car insurance - to date, I would have paid the insurance company $8,000. So *if* I had not paid the insurance company, and saved the money I would have $8,000 in the bank. But of course, I don't. I only stopped paying car insurance this year...
So what were my mistakes (aside from the driving mistake of hitting brakes hard in wet weather)?
I did not think through my venture into self-insuring. I just approached self-insurance from a "savings" point of view and did not think about the risks involved with it. Darren from Green Change commented on my post about the accident and succinctly gave me the direction I needed to have in approaching self-insurance:
"insure against the things that can wipe you out financially"
While my first attempt at self-insuring did not exactly wipe me out - it did take out 90% of my nest egg. I was lucky - it could've been much much worse. I shudder to think what could have happened had I not had the nest egg to begin with. I shudder to think what could have happened had I hit a luxury car.
So what am I doing now?
With Darren's advice in mind, I've now thought through my approach to self-insuring my car.
- I have chosen to take out third-party property damage insurance rather than comprehensive insurance. My car is a very common model - parts are easy to get, as well as quite reasonable in costs. I can afford to repair my car BUT its another story with others' car/s or property. Third party property damage covers the cost of any property damage I may cause to others as a result of my negligent driving.
- I decided to lower my insurance premium by increasing my minimum claim threshold (known as 'excess' here in Australia) to $1,000 instead of $500. Given my savings patterns, its almost certain that I would be able to pay $1,000 towards my claim in the event of an accident.
- I have decided to take advance driving lessons. While this doesn't lower my insurance premium in any way, it does (at least in my mind) lessen the chances of me making the same driving mistake again.
In response to my changes in insurance, I have also increased the amount I put aside for my savings.
In short, I am now partially self-insuring. I am insured for things that can wipe me out financially but not for things I can repair, easily replace or even just do without.
As for my nest egg? Well, I'm also slowly re-building that. To date, I have recouped 25% of the original amount. I have more plans for rebuilding my nest egg but that's a story for another day.
How about you? Do you self-insure? What is your approach to self-insurance?
12 comments:
I am too paranoid to self insure! We are insured for our home & contents, our car, our lives and my husbands income... the insurance companies just love us!
But we have recently done some shopping around and gotten better deals from a different company. Somewhat more frugal! It's alot of our hard earned money, but it makes me feel better... unless of course the insurance company goes under!
Good to hear no one was hurt, that you are getting back on track with your savings, and you got such good advice from Darren!
Here in New York State we also have compulsive liability insurance. I carry insurance for my car and damage I might do to others vehicles in excess of the liability insurance, because we do not have the nest egg to pay for such things ourselves. Our vehicle is old however, and once our nest egg reaches $6,000.00, then we will consider dropping just to compulsory.
Things to keep in mind. My father has only compulsory because if his vehicle is in an accident the insurance company will total it and give him $500 its old, and it has different colored doors, etc. So for him it makes sense to carry only compulsory and to put aside the savings toward the purchase of his next vehicle (he is considering for the first time in my 30 years actually purchasing a new vehicle instead of a used vehicle) and then reevaluating his needs.
I am not a fan of insurance. I will be self insured for Health in the next 5 years (but notice I will carry health insurance until my home and debts are paid off and I have the ability to pay for any major illness.
Its a risk you take, but in many cases its a risk worth taking.
The U.S. has a totally different stance towards self-insuring. You can pay the govt. $500 and then drive without insurance. If you hit someone, hope that they have under/uninsured motorist coverage to pay for their repairs, etc. This will not protect you, though, from being sued and possibly loosing what little you have. I take an EXTREMELY high deductible. Too chicken to attempt the other. My savings skills aren't worth poo. =)
Here in California, you are required to have insurance in order to drive....or have over 1,000,000 in the bank so self insurance is out completely for most people...in fact, if you drive without insurance and get in an accident, you can be arrested....and are always at fault.
we are fully covered!
Eilleen
I have had about the same attitude to insurance. Until we purchased the car we have not, we have had older, second hand cars, and only carried insurance to cover hitting another person's car. Replacing a cheap second hand car is cheaper ... and never had to use it. Then we bought a brand new car, and the cost of replacing it was never going to happen for us again, so I got comprehensive insurance.
However, I have always carried the best available roadside assist (NRMA, RACQ etc) cover - and it has paid for itself many times. To get assistance when you have an older car is invaluable. Haven't had to use it for the new car though!
Again household contents insurance - I chose to take out replacement insurance, which didn't cost that much more, because in the case of a major catasthrophe e.g. fire, it would allow us to start again with the essentials at least.
We live in CA like Dani, so car insurance is not a choice.
We did make a choice when it comes to health insurance. We used to carry a HMO for me (my husband's work pays for his) that cost $350/month but wouldn't cover any of the things i do (like massage, acupuncture, & natural health). It ALSO would not cover a general physical for work, so to add insult to injury i had to pay $220 out of pocket to get the exam.
So i now have an insurance which will cover me if i have something severe happen (like a car accident). I use that $350 for the things i was already having done: acupuncture, CranioSacral work, etc. I've not needed medication for pain or headaches since last December.
I recently needed a topical medication for a rash. The lady at the pharmacy was worried because it was "expensive." It was $85 & i paid out of pocket. She was worried because people usually only pay a $10 or $20 co-pay. But the coverage for meds would cost me $35 per month. Let's see, i've not had a Rx filled for more than 2 years. I could have been paying $35/month for that coverage. ($35 x 27 months = $945; so i could have paid $945 for that Rx so that i could pay $10 for it at the pharmacy.)
$85 didn't seem so bad to me. Doing natural health without HMO coverage makes sense to me.
Kathryn, That is a great example of what it means to insure.
Too many people don't have an emergency fund so instead pay their insurance company to have an emergency fund. I did not see it said but a good emergency fund is what you spend in six months. If you have debt: credit cards, student, car, or personal loans have a $1000 emergency fund and use the rest to pay off all that debt.
Like you Eileen, we have third party property insurance on our car. Our car isn't an expensive one, and is also a common model that would be easy to find parts for. DH is quite car savy, and my dad is a mechanic, so I have no doubt we could fix my car if anything happened to it. Another person's car is another matter, so we figured it is well worth the cost for the peace of mind.
Our house is covered for it's replacement cost, though we did have to send our building contract to the bank for them to agree to the amount we listed, as we have such a small house!
I have such a love/hate relationship with insurance! I love the security it makes me feel like I have... but I pay and pay and pay and have been for *years* and have *never* used it. Still... it's just part of my monthly budget, and if something were to happen, I like knowing that I'm covered. Especially as I've accumulated more "stuff" as I've moved through life ~ like a house. Something worth protecting and something I'm not willing to risk.
I have an emergency fund, and yet I still insure- there are many health and other things that could wipe me out financially. I do not have long or short term disability insurance, dental, or vision though (a lot of these have yearly maxes that make them not worth it for what I would need to pay). I do have rental insurance.
My health insurance is relatively high deductible but necessary since any health issues I have while uninsured could make health coverage next to impossible.
My car insurance is minimal for my car- it is old, so it is cheaper to not insure it against someone breaking in to it (I do have a lot of coverage against hitting other people etc though). We calculated at one point how much it was saved just by upping the deductible and dropping what was necessary. It was several thousand dollars, and that is AFTER accounting for the fees related to my car being totaled twice by other people hitting me (never hard, and always while I was stopped, really quite annoying!).
If I were to do it again, I would get health insurance for my cat- I hear pet insurance is more common some places, but it is not as common in the US. Like regular health care, there are good and bad companies, but man it would have been helpful when my cat needed expensive surgery to save his life.
Thank you everyone for sharing your thoughts. I think all of us sit on a risk continuum and its important to work out a balance that works for you.
Thank you again!
My partner drove around with only compulsory 3rd-party insurance for YEARS, because he couldn't afford comprehensive. He was lucky enough not to have an accident, but he was constantly nervous of taking out a fancy car and being financially ruined.
I like your (new) approach.
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