Insurance or Insanity?

There is an old saying that if you bought all the insurance you should have then you wouldn’t have money for anything else!

Some insurance is commonly accepted as, if not absolutely necessary, good to have.

Fire insurance
Theft insurance
Damage insurance
Liability insurance
Life insurance

Just to name a few.

Then there are the more detailed/specific insurances:

Water/flood insurance
Storm insurance
Errors and Omissions insurance
Professional/Malpractice insurance
Transportation insurance

Lost wage/pay insurance

Again, just to name a few.

Those who produce and sell these kind of policies make good arguments why they are needed.

This article is not about slamming the insurance industry (Washington does a great job of it already).

But you can go crazy worrying about all the events that might go wrong and then go broken trying to insurance against those events!

Insurance pros say that it isn’t the likelihood of an event happening but what kind of impact if it happened that you should be concerned about. Fire insurance on your home is a good example. Even without a mortgage (as a requirement of the bank for the loan) if your house was destroyed by fire that would be a devastating loss. By the same point, however, how many people have you ever met in your life who’s homes have been destroyed in a fire? MasterPo never has met anyone like that. Yet it is certainly a worthy risk.

Going beyond insurance, there are things we do everyday to protect against possible risk. You put your seatbelt on in a car not only because it’s the law (in most places) but just in case of an accident. Yet how many moving vehicle accidents have you ever been in during your life? And even if you have how many were serious enough to potentially cause significant injury or worse? Probably very few if any. But the chance is still there and if it happened the loss (your safety or even your life!) is significant.

At the same time, there is a line somewhere.

Consider Y2K.

As MasterPo has written here before there was real potential for disaster. But it didn’t happen.

Much hard work for months, even years before, help reduce (because you can never totally eliminate) the risk. Nevertheless, people did all sorts of things in preparation for the potential.

Some just had some extra food and water on hand in case of a few days interruption in services. Others went so far as to buy shelters in the deserts of Nevada and Arizona (for $30,000 each!). At least with the food and water you would use it eventually in daily life anyway.

What you do to protect yourself and your family is up to you. What you see as realistic risks or not is up to you.

But it does make sense that loss instead of probability is the greater factor to consider.

Be safe.
Be prepared.