Take a break from your weekly meeting of the Optimistic and Nearsighted Libertarian Club.

Dafuq Is Insurance and Why Do You Even Need It?

This article is definitely not about health insurance. I specifically refer to pretty much every other kind of insurance you can get in the United States, but not health insurance. Because contrary to what our fearless leader said recently, everyone knows that healthcare is really fucking complicated. Not to mention expensive.

Therefore, I’m saving it for another post so as not to muddy the waters… with our tears.

Our readers from civilized countries like Canada and Namibia are probably recoiling in horror right about now. Yeah. WELCOME TO THE LAND OF THE FREE AND THE HOME OF THE BRAVE, BITCHES. Moving on.

Insurance in general can seem like a confusing and unnecessary gamble. Obtaining it and taking advantage of its benefits might seem daunting. Why should you pay money for something you might never need? You’re healthy and careful! What’s the point of this expensive service?

Worry not my confident yet naive marshmallow peeps. I’ll break it all down for you.

What even is insurance?

Premiums! Deductibles! Claims! What does it all mean???

The basic principle behind insurance is that it’s a risk pool. We all put in a little bit of money so if one of us eventually needs that money for an emergency, they can afford to handle it. It’s a way of insuring (see what I did there?) that when you need money, you have it.

All through the power of communal support and friendship!

Yeah no. The giant, for-profit insurance companies who broker the risk pool transaction aren’t just doing this out of the goodness of their corporate hearts. They get to keep whatever money y’all paid in that didn’t get paid out in insurance settlements.

To use Kitty’s example: ten customers send in $40 per month to their insurance company. Nine don’t file a claim that year, and one files a claim that requires a payout of $1,000. Nine people get peace of mind, one person gets their big emergency paid for, and the insurers pocket $3,800 in profits for the year off of these ten customers.

Your premium is the money you pay (monthly, annually, or deducted from your paycheck) to your insurance company so that when you need them, they’ll have your back. Your deductible is the amount you pay to fix the problem before your insurance provider will swoop in and pay the rest.

You crash your car and it’ll take $3,000 to repair it. Your deductible is $200. You pay the mechanic $200 and your insurance pays your mechanic $2,800. This sounds pretty fucking awesome considering your monthly premium is $20 and you’ve had the car for two years. So spending that $480 over two years just saved you $2,320.

When you need to use your insurance, you file a claim with your insurance provider. If we’re talking theft or property damage, call them directly and tell them what happened. If this is medical or dental insurance, your doctor/dentist/pharmacist will need to keep a record of your insurance so they can file the claim on your behalf.

And that’s it! That’s the basics! Under the right circumstances, insurance can save your ass. Which is why most people are willing to pay a monthly premium to have it, even while hoping they’ll never need to use it. And it’s why we get pissed when the coverage we get in exchange for that premium fucking sucks. But I SAID I WASN’T GOING TO TALK ABOUT HEALTH INSURANCE SO I DIGRESS.

Why do you need it?

If you can’t afford to lose something, then you need insurance.

If you can’t afford to lose something, then you need insurance.

For example, if you financially support your spouse, children, or elderly Aunt Lupita, then you need life insurance because without your income they’d all be up a creek without the proverbial paddle.

They can’t afford to lose you. In the event of your untimely demise, the insurance company will give them money. That way they can pay off your debts, cover their expenses, and lay your earthly remains to rest in whatever manner they see fit. (Note to Kitty: I would like to be donated to science. And those eggheads better use every last part of me, just like the buffalo!)

Similarly, if you own something particularly valuable, you can get it insured (not that I have any experience with this form of insurance because I am an inveterate pauper).

Then there’s the insurance you’re required to have by law, like when you own a car or a mortgage.

If that sounds unfair to you, take a break from your weekly meeting of the Optimistic and Nearsighted Libertarians Club and consider what life would be like for you if other people could just… go without car insurance. If you’re going to be piloting around a ton of metal at lethal speeds all the time, you want to get that thing insured. And you want whatever car slams into you at high velocities to also have insurance. Because sudden, unexpected car damage is none too affordable.

Take a break from your weekly meeting of the Optimistic and Nearsighted Libertarians Club and consider what life would be like for you if other people could just… go without car insurance.

Homeowner’s insurance is required, but not necessarily for your personal benefit. It’s required by mortgage lenders so they can protect their asset. I’m three years into my mortgage so by this point I figure I own about this much of it:

We have now fulfilled our quota for 80s fantasy movie references in this blog post. You’re welcome.

Yeah. So when my roof was damaged in a hail storm, the insurance company threw money at us to fix it because that’s not really my roof. That’s the bank’s roof. And they’d prefer it not be leaky if they ever need to take it away from me.

(Also, if you got that joke: ten points to your respective Hogwarts house.)

Cautionary advice

So! You pay a monthly premium and in exchange, the insurance company pays to avert disaster. Sounds pretty straightforward and fair, right?

Sometimes insurance claims can go horribly wrong. It’s happened to me, and I don’t want it to happen to you!

Evidence is your friend

Do you have some form of property insurance? Great. Stop reading, go take pictures of your stuff, and upload them to the Cloud right the fuck now. Then make a list of all the serial numbers and your stuff’s other identifying information and upload that list to the Cloud too.

When I was a renter, I had renter’s insurance. This was meant to cover my stuff in the event of a fire, flood, or break-in. So when some asshole broke in while we slept, I thought we could easily replace our bikes and electronics.

Except that I didn’t have any proof that I ever owned them in the first place.

So go take a time-stamped photo of everything you own right fucking now and save it somewhere you can get at if your camera, phone, and computer are stolen.

Read the goddamn paperwork

Remember when Kitty spent 2,000 words explaining to you why most pet insurance is a fucking racket? All that research came from reading the policies of various insurance providers. They lay out their various shortcomings right there in writing!

Don’t fall victim to a useless insurance policy just because you’re too lazy to read the fine print!

Back to my home invasion. When I made my insurance claim, I was informed that everything I identified as belonging to my fiancé wouldn’t be covered. Why? Because he was listed as a “cohabitant” on my policy, not “coinsured.” Which is a distinction that would have been fucking nice to know when I signed the policy.

Don’t be a blithering idiot like me. Do your research and ask lots and lots of questions, even if they sound fucking dumb as shit. You’ll be grateful when you need that insurance later on and everything goes smoothly.

Don’t be a blithering idiot like me. Do your research and ask lots and lots of questions, even if they sound fucking dumb as shit.

Your emergency fund should at least equal your deductible

This past spring, a massive hail storm smashed every window on the west side of my house. It also stripped the paint from the siding, mangled our gutters, and made my roof look like the stress acne-riddled face of a teenager during midterms.

We filed an insurance claim right away and were informed that everything would be covered… but we’d need to pay our $2,800 deductible. No problem! We had that much and more in our emergency fund.

My neighbor wasn’t so lucky. She told me she didn’t pay much attention to what her deductible was, and the number came as a surprise. So she didn’t have it on hand. She had to scrimp and save to be able to afford her deductible before insurance would cover her house repairs.

You need some insurance… but you don’t need all insurance

Some insurance is really super unnecessary. Like extended warranties or pet insurance! It’s just there to make you feel better, with very little practical application by design. Remember: insurance companies are there to make a profit.

But hold it right there, dude about to write a comment about how you haven’t gone to the doctor in fifteen years and you’re just fine without health insurance!

For every lucky asshole like you, there’s our friend who ended up in a medically induced coma because of a freakishly virulent strain of pneumonia. There’s someone who slides on a patch of ice despite driving cautiously. Life is full of freak accidents and unforeseen emergencies and cancer! Did I mention cancer?

Don’t turn up your nose at useful insurance. But don’t go buying up all the insurance in a whirlwind of paranoia either. Research the odds that you’ll need it and your ability to afford emergencies without it.

Shop around

Insurance providers, like anyone else who gives you stuff in exchange for a subscription-based fee, are counting on you to be lazy. Because it takes time and effort to comparison shop for insurance rates to insure (hahahaha I did it again) you get the best deal. Not to mention—oh my stars and stripes—you might actually have to talk to someone on the phone!

Take it from our girl Tori Dunlop: comparison shopping and calling your provider could save you a shit ton of money.

Insurance providers, like anyone else who gives you stuff in exchange for a subscription-based fee, are counting on you to be lazy.

With that in mind, my husband literally saved a bunch of money on car insurance by switching to Geico… from the shitty insurance his parents have used since before the Flood. That antediluvian insurance company had no incentive to give their long-time customers a competitive deal! Why should they? Their customers are busy people who have neither the time nor the energy to battle corporate phone trees in order to save a couple dollars a month.

But you are a money BAMF. And you know that you could really use those dollars. So don’t just get sucked into an insurance policy because you’re tired and confused. Make them work for your business. Tell those fuckers you’re comparing offers and see if they don’t dance.

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11 thoughts on “Dafuq Is Insurance and Why Do You Even Need It?

  1. If only we could create our own insurance in little neighborhoods where the unspent money just stays in a pot year to year… oh well. Definitely hear ya on the e-fund the size of your insurance deductible! You do not want to be surprised with a 3K expense you can’t pay and a hole in your roof or lack of a drivable car… Looking forward to the health care post! (PS I fell even more in love with you because, Hercules.)

    1. If you got a good home inspector when you bought the house, I don’t think they’re useful. But if you rushed the inspection or you’re nervous about the property for one reason or another, it might be worth considering. But I don’t personally have one and I’m happy about that.

  2. I am adding your blog to my list of financial blogs. You explained very nicely about how the insurance work. Never thought of taking picture and uploading it to cloud. Good idea.

    1. Thank you! And yep, I now take pictures of all my good shit as soon as I get it. It’s all uploaded to the Cloud and easy to find even if I lose it all.

  3. As a Certified Floodplain Manager, I feel it is my duty to add “Flood Insurance” to this list. When a community is impacted by a Presidentially-declared disaster, the average payout for FEMA’s Individual Assistance is $5,000-6,000, while average flood insurance claim payment is over $40,000. Flood insurance is required if you have a mortgage AND your property is located in a Special Flood Hazard Area (aka flood zone), but you can get flood insurance very inexpensively if you are outside a flood zone. Why would you buy flood insurance if you are outside the flood zone?? Over 20% of flood insurance claims are for properties outside the SFHA… Flood maps can be old… Flood maps can be inaccurate… Unchecked development upstream can change flood characteristics in your community. Flood Insurance is good, m’kay?

    1. Josh!!! Thank you so much for commenting as this is EXCELLENT advice. I wanted to open the floodgates (pun intended) with this article, so if you have any other insurance advice, I’d love to hear it. This is the kind of insurance question a person outside the SFHA might not even know to ask when considering their insurance options.

      1. First thing to do is check with your City/Town/County planning office or Building Department to find out if your property is in a flood zone. You can also check the FEMA Map Service Center (msc.fema.gov). If you’re outside of the high hazard zones, contact your insurance agent about a Preferred Risk Policy (much lower prices for flood insurance). If you’re IN the flood zone (something starting with letters A or V) then you should contact a surveyor first. The surveyor can prepare an Elevation Certificate, which is what the insurance company will use to properly rate your policy. Generally, the rate is based on the elevation of your first finished floor of the structure, in relation to the required Base Flood Elevation. The higher above the BFE, the lower the premium (up to a certain point near 4 feet above). Conversely, the lower the finished floor in relation to BFE, the higher the premium charged.
        Also check the locations of your mechanical equipment servicing the building (HVAC, water heater, etc.) If this equipment can be raised, it could also lower your premium.
        I could drone on for quite a while longer, but that should be a good start for most people.

  4. The appeal of the insurance business is that they not only make money on premiums in excess of claims (the so-called “combined ratio”), but even the money that has to be eventually paid out to claims, they get to invest in the meantime. That is called “float” and it’s why Buffet is a billionaire.

    Never underestimate the power of OPM (other people’s money) in wealth generation. And also make sure to factor in your own “float” into any decision to self-insure.

    Great post as usual.

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