If you self-insured via credit card, and ever get into a serious accident, even if it’s not your fault, you’re going to wish you’d never thought of that idea:
I presume that you don’t have $10K cash lying around unused, or else you’d be putting it in an interest-bearing escrow account and self-insuring (which you CAN do with specific stipulations). Remember, cash is an asset, credit is just a potential debt – and a transient offer, terminable at will.
Please keep in mind that it’d be profoundly foolish to settle a serious medical claim hastily. A wise attorney will often suggest you wait at least until 6-12 months, so the full extent of the injuries, and associated treatment and rehab are better known. Once you accept a settlement, the book is closed, even if you turn out to need another operation or therapy. If you ‘need the money now’ to get by, you can be sure the opposing insurance company will use that to indercut your settlement (“We can only offer you $10K today. We only reimburse for solidly documented past or future expenses”]
-
Your car may be totaled or seriously damaged.[ul]
[li] How will you get to work?[/li][li] How will you pay off the balance of your car loan (if any) on the totaled car?[/li][li] How will you pay for a replacement or repairs?[/li][li] How will you pay for a rental while it’s repaired?[/ul][/li]Total costs can easily exceed the “extra $10K” you don’t have lying around.
After a bad accident, you may be financially strained, even with insurance.
-
You may be injured and unable to work. There goes your income. [ul]
[li] What will you live on? [/li][li] Will you even have a job, if you don’t show up for a few mionths?[/li][li] Who will pay you medical bills (Most HMOs won’t. They expect insurance to][/li][li] Who will manage your affairs, debts and and bills if you’re incapacitated?[/li]Your wife? Parents? Kids? Shall we have the government monitor THEM too?
What if they leave you, get sick, or die? What if they simply refuse the burden?
[li] What happens to your credit line, now that you’re less able to pay?[/li]No job, no car, lots of medical bills, no insurance - what a prime borrower!
[/ul] Medical crises are the #1 cause of bankruptcy. Auto accidents are a leading cause of expensive medical crises.
-
Your assets are already on the line for all damages in excess of your insurance coverage. In a serious at-fault accident, the other party has a claim against all your property and future earnings ANYWAY. Insurance increases the amount available to someone you accidentally injure. “Credit card collateral” does not. The government wants to assure that all its residents are protected against harm (accidental or intentional) by other residents.
This is why many states make it hard (or expensive) to qualify as a self-insurer. They want to keep people from using this method to save a few bucks at the potential expense of their fellow drivers. Self-insurers are usually substantial companies, well able to set aside or bear the full cost of several major accidents.
Imagine the other party is at fault (and dies). Say they have a poor driving record and high premiums, so it was cost-effective for them to use their liquid assets to self-insure, knowing that even if they bought a minmum policy, the leftover liability of a serious accident would wipe out those liquid assets anyway. Self-insuring would be a “no lose” scenario for them, but you would be only be able to collect $10K in collateral vs. $10K in insurance + $10K in assets. Would you feel the government has protected your interests adequately? Or would you call it a scam?
As Matchka said: they’re called “accidents” for a reason. No one is immune or infallible. You may think you’ll never be at fault, but statistically, you will. [In fact, the last time I was judged at fault in an accident, over 20 years ago, was just a week after I complained that I’d never need all this coverage. I never needed it before, and I’ve never needed it since, but I needed it then. True, I’ve spent far more in premiums than that accident cost me, but it could have wrecked my life at the time, if I hadn’t had insurance. I wouldn’t have been able to complete my doctorate, I might have had to declare bankruptcy, and my lifetime earnings would’ve been far less