Insurance Considerations

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Special scrutiny should be given to your financial outlays on insurance schemes rendered by big insurance conglomerates. Consider some ideas:

  • Wealthy people, families and companies tend to self-insure.
  • The act of selling insurance tends to exploit the risk-averse nature of individuals and their psychological biases. This leads to fallacious reasoning, and therefore poor decisions.
  • Insurers are set-up specifically to not lose money.
  • The incentives of the insurer and the insured do not overlap.
    • The insurer has the goal to make money and uses actuaries to ensure it happens.
    • The insured has the goal to get value for money and ensures it happens by either justifying the cost (in a logical or illogical manner) or by making false, illegal insurance claims.
  • The mismatched incentives between the insurer and insured causes a negative feedback loop under the following scenario:
    • Pursuit of maximal profit on behalf of the insurer (either arising internally, or externally from shareholders) causes premiums to go up.
    • Increased premiums puts more pressure on people to get value for money, which either causes the justifications being made to be more illogical, or for more additional illegal claims to be made.
    • Losses from illegal claims causes profits to decrease.
    • Repeat cycle.
  • While maximal profit is pursued and false claims are made, traditional insurance schemes will continue to fail at what they were intended to do: protect downside risk without draining wealth.

Decreasing the Traditional Insurance Burden

Insurance is fundamentally the task of being able to cover losses. You can make this easier on yourself by:

  1. Avoiding unnecessarily expensive assets.
  2. Avoiding and limiting risk where possible.
  3. Growing a fund to cover losses.
  4. Only using traditional insurance to cover losses that your own self-insurance fund cannot (for example, opting for third-party insurance versus comprehensive insurance).

Some Common Types of Insurance Policies

Here are some common types of insurance policies. If you had to purchase all of them, you might just have some money left-over for other less important things like food, housing, clothes et cetera:

  • Auto-mobile
    • For when your auto-mobile (car, motorcycle etc.) is damaged or destroyed.
  • Building
    • For when your home or one of your buildings is damaged or destroyed.
  • Contents
    • For when you need to replace lost, damaged or stolen contents. Usually bundled with "building" or "home" insurance but sometimes referred to as "renters" insurance for those that are renting and don't require building insurance.
  • Health
    • For when you have health issues.
  • Disability
    • For when you become sick or disabled, leaving you unable to work.
  • Life
    • For when you die and have financial dependants.
  • Professional
    • For professions that require insurance or those that are at high-risk of being sued.
  • Boat
    • For when you boat is damaged or destroyed.
  • Travel
    • For when travel does not go as planned (cancellation, delays, injury et cetera).
  • Pet
    • For when your pets have health issues.
  • Excess-charge
    • For when you actually make a claim...