Insurance Claim Paid. Replacement Time.

Yesterday we finished settling our insurance claim for the stuff stolen from our car on vacation in Hawaii. It's been over 2 weeks since the theft; nearly all the delay is on us. We didn't start the claim process until we got home from vacation (though we did file a report with the local police the day of the theft). We then took a week to fill out the spreadsheet of items stolen because we were too busy with work last week to want to deal with it.

The total replacement cost of the items stolen was $2,100, excluding sales tax. We detailed out a spreadsheet (using a template provided by the insurance company) of the items and their ages. They subtracted our $500 deductible then about $400 for depreciation, and sent us a deposit of $1,200. They transferred the payment through one of my debit cards so it was available pretty much right away. No more waiting for paper checks sent via snailmail. Yay, 21st century technology!

It's interesting how the depreciation thing works. We paid for an insurance policy with replacement value. After our loss they give us an upfront settlement with depreciated value. We can take that money and do whatever we want with it— including not replace things that were lost. If we do replace items we then can file for reimbursement up to the full replacement value. We need to provide proof, e.g. via sales receipts, that we bought a comparable item.

Hawk has already started buying replacement items. We did a quick shopping trip at REI last Saturday. (Recall the thief stole her hiking day-pack & the gear inside it.) I'm delaying a bit on replacing my gear. I'm considering replacing some of it with different items, particularly that "brick" lens for my camera. I may well used the depreciated settlement value to buy a lighter, less expensive, more versatile lens.

Insurance is a Racket

Insurance is a racket. I say that having just gotten paid on an insurance claim this week. It's not that I'm unhappy with the claims process.... Actually the claims process went faster and smoother than I expected. What I'm unhappy with is that I own this insurance policy at all.

Insurance is a business. Businesses exist to make money off their customers. Insurance companies make money by gauging your risks and charging more in premiums than they expect to pay out in claims. Do you know what business that most closely resembles? Legalized gambling.

Do You Feel Lucky, Punk?

In casinos, oddsmakers know the chances of winning or losing better than you do. In insurance, the oddsmakers are called actuaries. There are two big differences, though.

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The first is that in casinos you're almost always betting to win. You're betting on your number in craps and roulette, getting a better hand than the dealer in Blackjack, etc. With insurance you're actually betting to suffer a loss. It's like you're answering the classic Dirty Harry question, "You gotta ask yourself one question, 'Do I feel lucky?'" by betting on "Hell NO!"

Then there's big difference #2. In casinos you can choose not to bet. In fact that's almost always the best choice. Often you're forced to buy insurance. I was forced to buy the insurance policy I used this week as a condition of the mortgage on my house.

Is insurance a good deal, though? For some people and some situations, maybe most people and most situations, it is. But that means for some people and some situations, it isn't.

Don't Buy Insurance if You Can Afford a Loss

The main benefit of insurance (*except health insurance in the US) is it gives you access to a pool of money in the event of a loss. Suppose you're in a car accident and repairs and other costs are $10,000. Most people don't have $10k lying around for an emergency. But most people who can afford a car can afford, say, $100/month in car insurance.

Consider what those insurance oddsmakers actuaries are doing when they price your car insurance. They're figuring that, say, over the course of a year 1 out of 10 people like you will experience a car accident costing an average of $10,000 in covered damages. So they charge each of you $100/month. Do the math.... 10 people x $100 monthly x 12 months = $12,000. They're charging you, their customers, 20% more than the value of what you're getting. That 20% covers their business overhead and profit. That 20% is what you're paying for access to a pool of money.

Is there an alternative to paying someone else for access to a pool of money? Sure; if you have your own pool of money! If you have enough savings to cover an unexpected loss, like paying for repairs after a car accident or buying replacements after a burglary, you don't need insurance. Except that in many cases you're required to buy it.