The quote you responded to was about replacing some cds stolen out of a car. If your deductible is low enough that insurance comes into play for a few hundred cds, then your deductible is too low. You’re paying to insure against really minor setbacks, and losing money in the long run.
The calculation of how long it takes to build up an emergency fund at $20/mo is irrelevant. If you really can’t save any more of your income, and you have to spend $20/mo paying for insurance to cover your expensive CD collection, then you should stop buying stuff to add to the “needs insurance” pile and start saving more money. Remember, insurance policies don’t cover everything, and reducing specific risks by insuring against them without any general emergency fund will not end well if you encounter a problem that’s not covered by your insurance.
Gambling and insurance are very closely connected. Gambling involves paying money to increase the risk of a big payoff, and insurance involves paying money to reduce the risk of a big setback.
Insuring low-value items (like a CD collection) is paying money to reduce the risk of a minor setback. Just like no one would play a gambling game that returned $.99 on your $1 bet 99/100 times and gave you $1.50 the last time because there’s no chance of a big payout, just a long, slow drain, no one should insure against small losses, since the risk just isn’t that great, and you’ll end up paying for it in premiums over and over again.
Closely connected, but it’s a mistake to think that they’re exactly the same. As I mentioned above, a gambler can always choose to stop playing. Someone who’s exposed to an insurable risk very often doesn’t have that option.
I was referring specifically to the case of replacing some stolen CDs. There are two possible motives for getting insurance, the right reason is to guard against catastrophic losses, the wrong reason is to hope that your CDs get stolen more often than you’re paying in premiums so you come out financially ahead relatively.
I don’t think Tastes of Chocolate was saying that one should get renter’s insurance to cover their CD collection. Rather, I think the point was that renters insurance covers your possessions even when you take them outside your house, and that the stuff you carry around with you can be at a higher risk of being stolen – for example, someone breaks into your car or snatches your bag at the airport. And I think that’s a good point, because I know that when I travel I tend to leave my crappy stuff at home, and carry around my newer clothes, books, and gadgets.
sugar and spice got it in one. If all that renter’s insurance covered was the contents of my car, then no, it wouldn’t be worth it. My post was more of a “look what else is covered, when you make your value judgement” combined with pointing out that the insurance doesn’t just cover what is sitting in your home. Think Ronco TV ads “But wait… There’s more.”
How much it covers is completely irrelevant to the argument. All covering more does is raise your premiums incrementally. The real measure of whether you should buy insurance is, in the event of a catastrophe, would it be more convenient to talk to the insurance company? If you’ve accidentally burnt down an apartment building and you’re facing $300,000 in liability, then hell yes it’s going to be more convenient for you to let the insurance company deal with everything and insurance might be a rational choice. If you’re dealing with $400 worth of CDs being stolen from your car, then it should be far easier to just suck it up and replace them yourself. If an unexpected $400 purchase is going to inconvenience you, you have far bigger problems than whether to buy renters insurance.
The financial loss is irrelevant here, what matters is purely how much of an impact it’ll have on your day to day life. Focusing on financial loss is what leads to the reverse gambling mentality, you’re hoping that your loss will exceed the amount of premiums you’ve paid in so that you can “beat” the house. As far as strategies go, trying to beat the house is not a winning one.
So what practical implications does this have? It means you should buy insurance so that the deductible is at the threshold of what would be inconvenient for you, say half of your emergency fund or something similar. Anything lower and you’re gambling, not insuring yourself.
How about when your 3 digital cameras, your laptop computer and $500 worth of clothing get stolen with your luggage? Of course what is covered is relevant to the discussion. In order to judge the value of the insurance, you need to know what is covered by it. If your insurance only covers damage sustained if you have a ficus tree fall on you (to make fun of a current insurance ad) it’s not worth spending much on. If it covers someone stealing your computer while you are away from home, it’s value goes up. Without knowing what, where and when insurance covers you, how can you possibly make a valid judgement about it’s value?
Yes, my primary purpose for getting insurance it to make sure I can function if a truly cataclismic event happens, but I also want to know what else is covered by that insurance. I’m not in the insurance industry, so I’m not an expert, but I’ve never seen renter’s insurance that didn’t include coverage of possession, outside the house. Why should I ignore that bit of info while making my value judgement?
Sister had renters insurance at our apartment in VA. Her car had a 5-disc changer installed in the trunk (this was pre-cars being sold with CD players standard) Inside of car had about 12 CDs. It was parked in our apt lot. Thief pried open the trunk, took all the CDs, rifled through the glove box, and mangled the hell out of the disc changer trying to get it off the tracks it was installed on.
Renters insurance agency told her: damage to your car? Contact your Car insurance people.
Car insurance people told her: it happened in your apt lot? Contact your Renters insurance people.