4 ms·

You're right of course, but the reason I don't invest the money myself is mostly because I do not have the skillset to do so as effectively as the insurance com

by mpyne 14y ago

You're right of course, but the reason I don't invest the money myself is mostly because I do not have the skillset to do so as effectively as the insurance company, nor do I have the time to put into learning how to properly invest money (including diversification) such that it does grow as I would need it to in order to be useful as an insurance policy. I pay the insurance company extra to take on that risk of non-appreciating value for me (and maybe to do so more efficiently than I could, so that I actually pay less).

cdcarter 14y ago
Additionally, if the incident upon which you need to make a claim happens fairly early in the life of the policy, it's entirely worth it.
- lutusp 14y ago
  > Additionally, if the incident upon which you need to make a claim happens fairly early in the life of the policy, it's entirely worth it. Yes, but the advice to self-insure is based on the average outcome, not the exception. Insurance companies aren't profitable in spite of the lucky few whose claims take place quickly, but because of the vast majority for whom this isn't true. And insurance companies are very profitable.
  - philwelch 14y ago
    If you're writing thousands of policies, of course statistically you're going to profit because not all of them will claim before it has paid for itself. Once you pay the first claim, you've already collected 999 premiums at least once. But if you self-insure, you're only writing one policy, which puts all the risk back into it.
lutusp 14y ago
> You're right of course, but the reason I don't invest the money myself is mostly because I do not have the skillset to do so as effectively as the insurance company ... That's what the insurance companies say -- you can't possibly invest the money as well as they can. But you can -- just put the payments into a market index fund, a fund that tracks a market indicator like the DJIA. Such funds have almost no, or no, overhead because no one has to decide anything -- such a fund grows in step with the market indicator that it tracks. And guess what? There are very few mutual funds that do as well as a bonehead market index fund, one in which there's no fund manager to screw things up and charge you for the privilege. Here's why: http://en.wikipedia.org/wiki/Efficient-market_hypothesis http://en.wikipedia.org/wiki/Efficient-market_hypothesis Second reason -- it's true that insurance companies invest your payments wisely, but it's not true that you benefit from their ability to invest your money. Only their stockholders benefit. > I pay the insurance company extra to take on that risk of non-appreciating value for me (and maybe to do so more efficiently than I could, so that I actually pay less). Not if the insurance company makes a profit. And most do, with your money.
- mpyne 14y ago
  Those are great points (especially the market-indicator fund which does the work for you). That's still the kind of thing which you would need to bootstrap enough of a nest egg to protect against the difference in risk between little ol' me and the Big Insurance Co. Once you have enough money to protect yourself against one early disaster then you could shift over completely to saving up for self-insurance. I'm not there yet though :) I suppose it's like they say, you need to have money to make money.

by mpyne 14y ago

cdcarter 14y ago

Additionally, if the incident upon which you need to make a claim happens fairly early in the life of the policy, it's entirely worth it.

lutusp 14y ago
> Additionally, if the incident upon which you need to make a claim happens fairly early in the life of the policy, it's entirely worth it. Yes, but the advice to self-insure is based on the average outcome, not the exception. Insurance companies aren't profitable in spite of the lucky few whose claims take place quickly, but because of the vast majority for whom this isn't true. And insurance companies are very profitable.
- philwelch 14y ago
  If you're writing thousands of policies, of course statistically you're going to profit because not all of them will claim before it has paid for itself. Once you pay the first claim, you've already collected 999 premiums at least once. But if you self-insure, you're only writing one policy, which puts all the risk back into it.

lutusp 14y ago

> You're right of course, but the reason I don't invest the money myself is mostly because I do not have the skillset to do so as effectively as the insurance company ... That's what the insurance companies say -- you can't possibly invest the money as well as they can. But you can -- just put the payments into a market index fund, a fund that tracks a market indicator like the DJIA. Such funds have almost no, or no, overhead because no one has to decide anything -- such a fund grows in step with the market indicator that it tracks. And guess what? There are very few mutual funds that do as well as a bonehead market index fund, one in which there's no fund manager to screw things up and charge you for the privilege. Here's why: http://en.wikipedia.org/wiki/Efficient-market_hypothesis http://en.wikipedia.org/wiki/Efficient-market_hypothesis Second reason -- it's true that insurance companies invest your payments wisely, but it's not true that you benefit from their ability to invest your money. Only their stockholders benefit. > I pay the insurance company extra to take on that risk of non-appreciating value for me (and maybe to do so more efficiently than I could, so that I actually pay less). Not if the insurance company makes a profit. And most do, with your money.

mpyne 14y ago
Those are great points (especially the market-indicator fund which does the work for you). That's still the kind of thing which you would need to bootstrap enough of a nest egg to protect against the difference in risk between little ol' me and the Big Insurance Co. Once you have enough money to protect yourself against one early disaster then you could shift over completely to saving up for self-insurance. I'm not there yet though :) I suppose it's like they say, you need to have money to make money.