The Insurance Scam*

I don't know what the star is in the title of this post is for - I feel like I see it more and more on blogs and news organizations but I cannot figure out what it means when others do it either; but I am a sheep so I will follow.  Now to business.

Insurance as a broad thing is kind of a scam.  On paper it sounds good.  If something devastating happened to my health/house/car and I had to fix/replace them there is no way I would be able to afford it so I will pay a smallish (kind of) sum and if the devastating even happens, you pay for it.  Perfect.  It is really when you get into that sum as well as your responsibility where things get fishy.

Before we get into the meat of insurance, some is necessary.  For the sake of the discussion, the three items below are deemed necessary insurance:

1. Health. Medical care gets crazy expensive and I am pretty sure Obama isn't going to fix that.  Until it gets cheaper no one can afford medical coverage if you got cancer or something very bad.
2. When you could cost others money.  This is where car insurance needs to happen.  You should only have to pay insurance to cover the other person's car.  It wouldn't be fair to have to pay for something that isn't your fault.
3. When you couldn't pay for it ever.  This would be mainly home insurance.  You should have home insurance because you will probably never be able to absorb losing a home.

Now, let's take responsibility.  You should not own things past what you can afford to replace.  Before you get pissed here is the key thing to remember - you are not entitled to the exact thing you just had.  If you drive a $30,000 car and you wreck it you need another car that works, not another $30,000 car.  If YOU broke something then YOU should replace it.  People fall into the trap of having the nicer things which can be OK if you plan for buying them.  By doing your homework and the buying a nicer product the product is insurance in itself.  If you buy something you know is reliable then it is not going be as likely to break therefore it wont be necessary to have insurance for that item. This also brings in product defectiveness.  Why should I buy insurance on something so that if it breaks in six months I get my money back?  Are we in Taiwan!?!?  Companies should, and for the most part do, back their products.  Use the warranty instead of buying insurance on stuff like TVs and computers - really anything smaller than a car.

Now to the cost.  You pay A LOT in insurance if you have a house and a car.  There are other things you might get insured as well.  Typically on smaller electronics, the insurance is a third the cost of the product and since the warranty from the manufacturer is good for at least a year, you are buying insurance to bet against your product breaking after one year and before the insurance expires.  Insurance with this high of a cost makes NO sense.  Never do it - the math does not add up.  If your stuff keeps breaking try a different manufacturer.  This can apply to larger items as well so do some math first.  If you have a monthly payment on an item of $1000 a month it is really hard to justify a few hundred dollar home insurance - especially if you have equity in it.  It may be better to save that money that would have gone to insurance as a down payment on a new version of the item.

Be careful with insurance and make sure you really need it.  There is a reason they call them snake oil salesmen.

"I Googled 'sexy insurance' and sadly, this is the best the insurance industry can offer."