Self-Insurance, and why Frankkj is the minority
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21-01-2014, 10:54 AM (This post was last modified: 21-01-2014 11:04 AM by Cathym112.)
Self-Insurance, and why Frankkj is the minority
This thread is about the concept of self-insurance, whether that be for your automobile, or your healthcare, with the inherent understanding that health care is a substantially more inelastic demand than repairs to automobiles. Further, since health care is not a free-market, but rather a monopoly, there can be no real "shopping around" for services.

Frankkj seems to be under the impression that self-insurance is the way to go. And it might very well be. For him. But the majority of individuals cannot front this money for self insurance on their own.

What is self insurance? It's a method of managing risk by setting aside a pool of money to be used if an unexpected loss occurs. For the sake of argument, I will limit self insurance to individual self insurance and not at the corporate or employer-funded plans.

Lets say you buy a car. In CA, the state minimum for liability insurance is $15,000., $25,000 for Personal Injury and $5,000 for property damage. Collision and comprehensive insurance is optional. You do not have to have insurance from an insurance company - you pay self insure with a bond certificate or proof of financial position to carry that risk. But what is the risk? well, in the last 19 years (from 1990 to 2009), the United states saw an average of 38.21 million fatalities. With 300 million people living in the US at any given time, this is an approximate risk of 12.73% that you will be involved in a fatal car accident (even if its not you who dies). Thats a pretty high risk, considering that not all 300 million american own or drive cars, I'm just generous with the assumptions. Stats

So considering a vehicle value of $40,000, how much money would you 1) need to put upfront; or 2) put away monthly in a savings account? According to Frank, he considers a reasonable Return on Investment (ROI) to be 7%. This of course, assumes your account will be completely managed on your own, and therefore you will have no brokers fees/commissions. This money must be invested extremely conservatively, as you cannot afford to let the account lose any value.

1)So, to keep it simple, you need $40k up front to buy the car, then you need $45k just to meet the state minimums, then you need another 40k to insure against collision or comprehensive accidents (deer, trees falling on your car, etc). Thats to insure yourself up front, at the barest of minimums. Do most people have $125,000 in cash laying around? Not when the median income for Americans is around 40-50k per year.

Now, here is the problem with the barest of minimums. Just because its the minimum, doesn't mean that an injured party can't come after you for the difference.

Do you think that if you kill someone in an automobile accident, where it is deemed to be due to your negligence, you will only have to pay $15,000 to the family for their expense? If you honestly think that - I have a bridge to sell you. The family will file a wrongful death suit and since self insurance carries the association of wealth, I would think a Jury would grant a judgment of a much higher award if the party was insured through an insurance carrier. ***just my opinion, I have no data to back this up.
or

option 2)

You need 40,000 to purchase the car. You still need to buy the minimum insurance from an insurance company (you can't give the state of CA an IOU proof of the money, it must be there on the date of registration), but you have the option to self insure the collision and the comprehensive. You would need to invest, $550 per month (thats 6,600) per year into an account assuming 7% for 5 years in order to get 40,000. and that does not include the cost of the basic insurance....

In either of these cases, the self insurer bares the responsibility of any and all investigations/adjusters, etc., that need to be done into accidents.

And that is assuming that zero risk is actually realized over the course of those 5 years, OR that you are never sued for anything beyond your coverage (unlikely in the event of an accident where it was your fault) so if you are, you also need to set aside any money for lawyers!

I am a very careful driver, but even I have had a deer jump out at my car on the highway. Accidents, even small ones, happen. It doesn't always have to be anyone's fault.

Frank discusses Moral hazard as a part of owning insurance, which is true....people are less careful when they have insurance. However, what he doesn't consider is that with self insurance, there is also a level of moral hazard in that it takes a huge commitment to consistently make payments to the account....especially when no immediate penalty would arise if you were to "miss a few payments" or worse, "borrow from your account" to buy something else.


therefore - the average person cannot make these kind of payments to themselves or bare the burden of this risk. Self insurance can happen, but its not nearly as black/white as frank would make it seem.

What do you think? Is self insurance a viable option for you?

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21-01-2014, 12:38 PM (This post was last modified: 21-01-2014 12:43 PM by GirlyMan.)
RE: Self-Insurance, and why Frankkj is the minority
(21-01-2014 10:54 AM)Cathym112 Wrote:  What do you think? Is self insurance a viable option for you?

Not even an option for auto insurance here in the Peoples Republic of Maryland.

Maryland law requires that all motor vehicles registered in Maryland be insured by a company licensed in Maryland and carry coverage of:
$30,000 for bodily injury per person,
$60,000 for bodily injury for two or more people, and
$15,000 for property damage.

under penalty of -

Lose license plates and vehicle registration privileges.
Pay uninsured motorist penalty fees for each lapse of insurance - $150 for the first 30 days, $7 for each day thereafter.
Pay a restoration fee of up to $25 for a vehicle's registration.
Be prohibited from registering any future vehicles until all insurance violations are cleared.
Be prohibited from renewing a suspended registration until all insurance violations are cleared.
Have license plates confiscated by an authorized tag recovery agent, once a registration suspension is in effect.
Pay a fine of up to $1,000 and/or one year imprisonment for providing false evidence of insurance.


Frank's argument boils down to semantics wrt health care. He is correct that we no longer have what could technically be called health care "insurance" anymore, it's more like health care "subsidization". As I've told him before, "Fine let's just stop calling it 'insurance' then and be done with it."

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22-01-2014, 07:08 AM
RE: Self-Insurance, and why Frankkj is the minority
I think most people neither have the funds nor the self discipline to practice self insurance.

The tax payer would pick up all the bills.

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22-01-2014, 03:15 PM
RE: Self-Insurance, and why Frankkj is the minority
Of course. But in Magical Libertarian FantasyLand*, every individual citizen practices perfectly rational self-interest and there are no innate inherited systematic inequalities restricting them, and also no one ever breaks rules or exploits the system, and every lives in perfect harmony. Therefore it all works out.

*Magical Libertarian FantasyLand is right next door to Magical Communist FantasyLand. They have a peaceful open border. But they're only on the secret maps The Man doesn't want you to see.

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22-01-2014, 03:22 PM
RE: Self-Insurance, and why Frankkj is the minority
I don't got none.

Upholding the freedom / liberty to spend my money instead on hookers, pills and booze.

Yes

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22-01-2014, 07:03 PM
RE: Self-Insurance, and why Frankkj is the minority
(22-01-2014 03:22 PM)DLJ Wrote:  I don't got none.

Upholding the freedom / liberty to spend my money instead on hookers, pills and booze.

Yes
lmao.
You ain't got none 'cause living in Singapore you don't NEED none. The State of Maryland is currently experimenting with a variant of the Singapore model. ... Where's that :sarcasm: smiley. Tongue

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22-01-2014, 07:05 PM
RE: Self-Insurance, and why Frankkj is the minority
Red lights have no right to tell me when to stop!
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23-01-2014, 12:41 AM
RE: Self-Insurance, and why Frankkj is the minority
The OP of this thread misrepresents what frankkj has said about insurance. He has never suggested he preferred "self insurance". He has stated many times that he prefers catastrophic insurance over comprehensive insurance.

It is just a simple fact that any comprehensive insurance plan is on average more expensive than buying products covered by this comprehensive plan on your own. This is simply because the insurer has overhead and management costs to pay a third party on your behalf. I personally only purchase insurance products for those expenses I cannot afford. I opt for high deductibles with limits I can cover without difficulty or decline coverage for things that I can pay for myself.

What frankkj has been saying is he prefers to only purchase insurance for his health care needs that he cannot afford. He is saying he can afford to pay for routine care like flu shots, annual checkups, etc on his own, but he likely could not afford say the care required for a catastrophic event like a heart attack or cancer. His complaint is that Obamacare makes it impossible for him to choose what he wants to buy, that it forces him to buy comprehensive coverage which includes health care services he may not ever want to buy or care to obtain coverage for.

I don't always agree with frankkj, but it seems the OP has not understood the main argument he has been making.
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23-01-2014, 01:30 AM
RE: Self-Insurance, and why Frankkj is the minority
(21-01-2014 10:54 AM)Cathym112 Wrote:  This thread is about the concept of self-insurance, whether that be for your automobile, or your healthcare, with the inherent understanding that health care is a substantially more inelastic demand than repairs to automobiles. Further, since health care is not a free-market, but rather a monopoly, there can be no real "shopping around" for services.

Frankkj seems to be under the impression that self-insurance is the way to go. And it might very well be. For him. But the majority of individuals cannot front this money for self insurance on their own.

What is self insurance? It's a method of managing risk by setting aside a pool of money to be used if an unexpected loss occurs. For the sake of argument, I will limit self insurance to individual self insurance and not at the corporate or employer-funded plans.

Lets say you buy a car. In CA, the state minimum for liability insurance is $15,000., $25,000 for Personal Injury and $5,000 for property damage. Collision and comprehensive insurance is optional. You do not have to have insurance from an insurance company - you pay self insure with a bond certificate or proof of financial position to carry that risk. But what is the risk? well, in the last 19 years (from 1990 to 2009), the United states saw an average of 38.21 million fatalities. With 300 million people living in the US at any given time, this is an approximate risk of 12.73% that you will be involved in a fatal car accident (even if its not you who dies). Thats a pretty high risk, considering that not all 300 million american own or drive cars, I'm just generous with the assumptions. Stats

So considering a vehicle value of $40,000, how much money would you 1) need to put upfront; or 2) put away monthly in a savings account? According to Frank, he considers a reasonable Return on Investment (ROI) to be 7%. This of course, assumes your account will be completely managed on your own, and therefore you will have no brokers fees/commissions. This money must be invested extremely conservatively, as you cannot afford to let the account lose any value.

1)So, to keep it simple, you need $40k up front to buy the car, then you need $45k just to meet the state minimums, then you need another 40k to insure against collision or comprehensive accidents (deer, trees falling on your car, etc). Thats to insure yourself up front, at the barest of minimums. Do most people have $125,000 in cash laying around? Not when the median income for Americans is around 40-50k per year.

Now, here is the problem with the barest of minimums. Just because its the minimum, doesn't mean that an injured party can't come after you for the difference.

Do you think that if you kill someone in an automobile accident, where it is deemed to be due to your negligence, you will only have to pay $15,000 to the family for their expense? If you honestly think that - I have a bridge to sell you. The family will file a wrongful death suit and since self insurance carries the association of wealth, I would think a Jury would grant a judgment of a much higher award if the party was insured through an insurance carrier. ***just my opinion, I have no data to back this up.
or

option 2)

You need 40,000 to purchase the car. You still need to buy the minimum insurance from an insurance company (you can't give the state of CA an IOU proof of the money, it must be there on the date of registration), but you have the option to self insure the collision and the comprehensive. You would need to invest, $550 per month (thats 6,600) per year into an account assuming 7% for 5 years in order to get 40,000. and that does not include the cost of the basic insurance....

In either of these cases, the self insurer bares the responsibility of any and all investigations/adjusters, etc., that need to be done into accidents.

And that is assuming that zero risk is actually realized over the course of those 5 years, OR that you are never sued for anything beyond your coverage (unlikely in the event of an accident where it was your fault) so if you are, you also need to set aside any money for lawyers!

I am a very careful driver, but even I have had a deer jump out at my car on the highway. Accidents, even small ones, happen. It doesn't always have to be anyone's fault.

Frank discusses Moral hazard as a part of owning insurance, which is true....people are less careful when they have insurance. However, what he doesn't consider is that with self insurance, there is also a level of moral hazard in that it takes a huge commitment to consistently make payments to the account....especially when no immediate penalty would arise if you were to "miss a few payments" or worse, "borrow from your account" to buy something else.


therefore - the average person cannot make these kind of payments to themselves or bare the burden of this risk. Self insurance can happen, but its not nearly as black/white as frank would make it seem.

What do you think? Is self insurance a viable option for you?


On the topic of self insurance, I don't think it is possible to afford self-insurance for liability. I personally do not insure vehicles for comprehensive or collision coverage. I can afford to buy another car to replace my current one if needed. Over my driving history, I have saved enough on these coverage costs (compounding interest on investments and savings) to buy another car. I would be a fool to buy comprehensive and collision coverage for my car when I can afford to buy another one on my own.

Now for liability, that is another story. My liability coverage insurance costs run about $20-$25/mo. I could not afford to pay $300k for some sue happy car accident victim with "soft tissue injuries", so I carry coverage for this.

On another note, I'd never pay $40k for a car. You can buy a decent new car for on the order of half that price, and a decent used one for a quarter of that price. Here's a thought--why not buy the amount of car you can afford?
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23-01-2014, 05:37 AM
RE: Self-Insurance, and why Frankkj is the minority
(23-01-2014 12:41 AM)BryanS Wrote:  The OP of this thread misrepresents what frankkj has said about insurance. He has never suggested he preferred "self insurance". He has stated many times that he prefers catastrophic insurance over comprehensive insurance.

It is just a simple fact that any comprehensive insurance plan is on average more expensive than buying products covered by this comprehensive plan on your own. This is simply because the insurer has overhead and management costs to pay a third party on your behalf. I personally only purchase insurance products for those expenses I cannot afford. I opt for high deductibles with limits I can cover without difficulty or decline coverage for things that I can pay for myself.

What frankkj has been saying is he prefers to only purchase insurance for his health care needs that he cannot afford. He is saying he can afford to pay for routine care like flu shots, annual checkups, etc on his own, but he likely could not afford say the care required for a catastrophic event like a heart attack or cancer. His complaint is that Obamacare makes it impossible for him to choose what he wants to buy, that it forces him to buy comprehensive coverage which includes health care services he may not ever want to buy or care to obtain coverage for.

I don't always agree with frankkj, but it seems the OP has not understood the main argument he has been making.

Brian,

I understand full well that it was the point he was making. Frank stated that he only buys te state minimums for liability. Which doesn't mean that's all you will ever pay, it means that's all the INSURANCE will pay. I guarantee you, if you only have 15k in liability, driving a Ferrari, you WILL get used for your personal assets if you are at fault.

Also, at one point, as a part of his reductio as aburdum arguement, he argued that you can completely insure yourself using self insurance if you simply invested the money "carefully".

He refuses to stop using reductio as aburdum....so instead of fighting it, I'm making a point out of his ridiculous arguments.

If you choose to self insure - that's great for you. My insurance (for much higher than the state minimums) is 783 per year. Because part of gambling is hedging your bets. I bet against myself in the event that my luck turns on me.

I have millions in life insurance. Not because my family needs protection when I die - there is plenty there to care for them - but to hedge my bets against the government raising estate taxes. So my LI is intended to pay the estate taxes so that my family can actually get more money.

A little rudeness and disrespect can elevate a meaningless interaction to a battle of wills and add drama to an otherwise dull day - Bill Watterson
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