Here’s a little secret about insurance: Insurance companies make a profit on the insurance they sell you. Do you know how I know that? Because they have to or they go out of business! And that’s ok! Because they provide a service in return. Insurance covers a bad thing happening that has a low chance of happening but a catastrophic financial outcome. For example, you buy homeowners insurance so if your house burns down, the insurance pays for a new house. The insurance company still profits overall (from all the people whose homes DON’T burn down) but if you’re the unlucky one, you’ll want the insurance so your financial life isn’t ruined.
It makes sense for houses burning down, because you can’t cover that expense out of pocket. On the other side of the spectrum is insurance they sell on things like TVs. The insurance pictured here is for a TV on Amazon that costs about $200. If your $200 TV breaks, that’s not a catastrophic financial event. You can either pay to get it repaired, or sell it for parts and buy a new one. Yeah, it sucks if that happens, but if it does you can cover it. So there’s no need to be lining the pockets of insurance companies to protect yourself in the rare event of a TV breaking. Simply “self insure” your smaller devices like that by putting those insurance dollars into your own account (emergency fund, sinking fund, whatever). Then when a little bad thing happens, you just pay for it and go on with your life. No need to line the pockets of insurance companies along the way.
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.
-Jeremy
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