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Is Insurance Economical If A Person Has The Funds To Cover Any Disaster?

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Is Insurance Economical If A Person Has The Funds To Cover Any Disaster?

Postby Roswald » Tue Sep 12, 2017 8:07 am

This question is purely about the economical efficiency of insurance vs self-funding.

My hunch is that it is not because not only does the insurance company have to pay medical bills, but they have to pay their own employees, people taking advantage of insurance, lawyers, etc . . .

If somebody knows the percentage of what somebody would pay with one method over another method, I would find that very enlightening.
Roswald
 
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Is Insurance Economical If A Person Has The Funds To Cover Any Disaster?

Postby Kynan » Tue Sep 12, 2017 9:22 pm

NO

It is still better to have insurance. Bill Gates still pays home owners insurance in case his house is burned down, etc. The reason why is that by paying insurance he is able to forgo his having to pay for the loss out of his money entirely. As long as what he is paying to the insurance company does not equal more then what he could have been making had he invested the money, it will be wiser for him to pay for the insurance (and this all depends on what time the house does "accidentally" have something happen, if he gets the insurance, and has only been paying it for 5 years, he definitely would have been better off with it then without it).


I apologize for it being confusing but if you cannot think outside of the box you'll never understand why it is beneficial to have the insurance then to not.
Kynan
 
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Is Insurance Economical If A Person Has The Funds To Cover Any Disaster?

Postby Ray » Fri Sep 15, 2017 10:58 pm

On something like heath insurance where almost everyone sooner or later will have big bills you are better of paying yourself because insurance is just spreading your payment over time, like putting things on a credit card, and they take 30% of the premiums for administrative expenses. People buy heath insurance because they would have cash flow problems if the did not because you can not plan when you will have expenses.


Insurance for things that are unlikely to happen like fire or wind damage to your home, you are paying to have someone else share the risk, not inevitable expenses, so the premiums are small compared to the loss and the peace of mind is probably worth it.
Ray
 
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Is Insurance Economical If A Person Has The Funds To Cover Any Disaster?

Postby aodh10 » Sun Sep 17, 2017 9:46 am

I tend to agree with you that the more money you have, the less benefit you gain from insurance and the more potential to be better off without insurance. The benefit of insurance is that it reduces risk. You pay a fee to reduce risk. Risk is an economic cost. But the more funds you have available, the lower your risk. That makes the risk reduction from having insurance even more insignificant.

But still, it boils down to your risk tolerance. There isn't exactly a mathematical calculation to find the optimal decision on whether to have insurance or not because it comes down to how much you value protecting against an unlikely event. I don't have life insurance to cover my funeral expense in case I die unexpectedly, but I am reasonably sure I will have more than enough assets and cash to cover the funeral expenses. But even then there is still risk that I could be wiped out completely by something else. I could be the victim of a major lawsuit or theft that wipes me out.

I could help insure my survival by stockpiling canned food and water, just in case civilization is wiped out, but the risk is so low that I gain very little risk reduction, at the cost of the space used and of spending that money on the stockpile.

If you have insurance, you can take more risk in investing your cash since you will still be covered by insurance if you lose it all. If you don't have insurance, your money has greater possible liability risk that should be considered in assessing your risk tolerance.

Also, I would think different types of insurance have different overhead costs. Life insurance would probably be much cheaper to administer than health insurance.
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