Self-Insurance, and why Frankkj is the minority
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23-01-2014, 05:49 AM
RE: Self-Insurance, and why Frankkj is the minority
(23-01-2014 01:30 AM)BryanS Wrote:  
(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?

That's your choice. I buy the cars I want to buy. My car is used, it's actually a car that, if bought new, would be 60k.

Not everyone is as self disciplined to consistently make payments To themselves (since there is no immediate penalty for not) and investment the money "correctly"

I choose to have full coverage, not because I'm a bad driver, but because of the area in which I live. Lots of deer, lots of rednecks that only carry state minimums. If some idiot with a rusted truck t-bones me, his insurance won't pay for my car.

The point of insurance is not so you can "buy a car you can't afford"...most people can afford a car...they just can't afford it twice .

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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23-01-2014, 05:53 AM (This post was last modified: 23-01-2014 05:59 AM by Cathym112.)
RE: Self-Insurance, and why Frankkj is the minority
Insurance is only pissing money away...if you never realize your risk. If you realize it, especially more than once, it's not so stupid anymore.

I plow through at least 1 deer every 2 years or so. Everytime I smash into one, because it jumped out in front of me (even at 30 mph) it always requires a door replacement. (They love running into the side of the car).

My comprehensive coverage is 200 per year. Everytime I hit a deer, it's at least $1,000 to replace shit. Even if it takes me 5 years to smash one, I will have broken even.

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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23-01-2014, 08:12 AM
RE: Self-Insurance, and why Frankkj is the minority
(23-01-2014 05:37 AM)Cathym112 Wrote:  He refuses to stop using reductio as aburdum....

Mis-using, rather. As ever. Which is not particularly surprising, from a man who doesn't understand what 'axiom' means.

Let us consider a favourite argument:
Premise: incrementing [some value] by a small amount will not have a statistically significant effect on [some other value]. (where the usual suspects may be tax rates or insurance premiums, but nothing would change were they anything from the rate of Earth's rotation to an individual's body mass)
What our special friend calls "reductio ad absurdam":
Therefore: if incrementing once (by 'n') has no effect, incrementing twice ('2n') will have no effect.
Therefore: ... incrementing to infinity will have no effect.
Premise: incrementing to infinity does have an effect.
Conclusion: incrementing once has an effect.
Insane troll logic strikes again!

It's truly fascinating, because it really takes effort to be that wrong.

(23-01-2014 05:53 AM)Cathym112 Wrote:  Insurance is only pissing money away...if you never realize your risk. If you realize it, especially more than once, it's not so stupid anymore.

Yes. Very much so.

The pervasive inadequacies of our instinctive risk-assessment and instinctive statistical understanding are pretty well documented.

... this is my signature!
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24-01-2014, 09:39 PM
RE: Self-Insurance, and why Frankkj is the minority
(23-01-2014 05:53 AM)Cathym112 Wrote:  Insurance is only pissing money away...if you never realize your risk. If you realize it, especially more than once, it's not so stupid anymore.

I plow through at least 1 deer every 2 years or so. Everytime I smash into one, because it jumped out in front of me (even at 30 mph) it always requires a door replacement. (They love running into the side of the car).

My comprehensive coverage is 200 per year. Everytime I hit a deer, it's at least $1,000 to replace shit. Even if it takes me 5 years to smash one, I will have broken even.



When I make my decision about not carrying comprehensive insurance on my car, I am making it fully understand probability and expectation value. The expectation value of payout on an insurance policy must be less than what you pay for that policy, or you would be dealing with a company that will not be in business long due to lack of profit or could potentially be unable to afford to pay out its claims.

You hit a lot of deer. If you're insurance company enjoys paying an average of $500+ per year to cover you while only charging $200/year, congratulations on finding a stupid insurance company. If you were my customer, I would jack up the rates you pay or drop you as a customer.

Just because most people cannot afford to buy two cars, that does not mean my insurance decision is wrong for me. If someone cannot afford to buy another car, they cannot afford not to have insurance. My point is that it is foolish to pay for insurance on something that you can afford--and really, I should say easily afford.
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25-01-2014, 06:06 AM
RE: Self-Insurance, and why Frankkj is the minority
(24-01-2014 09:39 PM)BryanS Wrote:  
(23-01-2014 05:53 AM)Cathym112 Wrote:  Insurance is only pissing money away...if you never realize your risk. If you realize it, especially more than once, it's not so stupid anymore.

I plow through at least 1 deer every 2 years or so. Everytime I smash into one, because it jumped out in front of me (even at 30 mph) it always requires a door replacement. (They love running into the side of the car).

My comprehensive coverage is 200 per year. Everytime I hit a deer, it's at least $1,000 to replace shit. Even if it takes me 5 years to smash one, I will have broken even.



When I make my decision about not carrying comprehensive insurance on my car, I am making it fully understand probability and expectation value. The expectation value of payout on an insurance policy must be less than what you pay for that policy, or you would be dealing with a company that will not be in business long due to lack of profit or could potentially be unable to afford to pay out its claims.

You hit a lot of deer. If you're insurance company enjoys paying an average of $500+ per year to cover you while only charging $200/year, congratulations on finding a stupid insurance company. If you were my customer, I would jack up the rates you pay or drop you as a customer.

Just because most people cannot afford to buy two cars, that does not mean my insurance decision is wrong for me. If someone cannot afford to buy another car, they cannot afford not to have insurance. My point is that it is foolish to pay for insurance on something that you can afford--and really, I should say easily afford.

Bryan - where did I say that just because it isn't for everyone, that it's right for no one?

I'm glad it's good for you. You also said you would never pay 40k on a car.

You also don't understand comprehensive. I hit a lot of deer because the only thing you can do when a deer jumps out is slam on the brakes and duck. I don't swerve, because then that's collision if I hit anything other than the deer. I hit a lot of them because I live the majority of the year in the woods.

I pay approximately $800 annually for my car insurance. I am not going to invest anymore money than that because it's not a good idea to investment money in order to pay for a depreciating asset.

Rollover the capital gains in your house, or other appreciating assets, not your most depreciating asset like a car.

It would take me, 25 years of investing 800 with no accidents in order to be able to self insure 40k car.

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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27-01-2014, 08:03 PM
RE: Self-Insurance, and why Frankkj is the minority
Couple of points on this.

First, the problem with the insurance Frank advocates is that the rates are totally jacked up exactly becasue of insurance. The way it works now is that hospitals and doctors put forth a ridiculous rate for pretty much any procedure, insurance companies pay their negotiated rate - which usually screws the doctor pretty badly - and anyone unfortunate enough to show up without insurance gets hit with a bill for the full sticker price, which most people really cannot afford. There are a lot of reasons why this silly system exists, not worth getting into here, but the fact is that is the reality. When my wife gave birth to our 2nd child, I got a copy of the bill. The cost of having a kid, plus 1 day hospital stay (she wanted to go home and left early), was like $500,000 or something insane like that. And, that was 2003. Of course my carrier paid nothing close to that, but that was the sticker price and that was the starting point for any negotiation with an uninsured or under insured person.

The US health care fee-for service where a 3rd party payer stands in the middle of every single transaction is perverse and is the single biggest cause of our rising health care costs. Don't believe, go look at other places where this has happened. For example, vet bills. I have 2 dogs, one 14 1/2 and one just about 2. Around the time I got my older dog, pet insurance started to become popular. You can now buy pet insurance to cover all your dogs expenses, from routine vet visits to any major problems. I never bought it, but I'm starting to regret it because the cost of vet care is starting to get out of control. A routine visit used to cost me like $65. Last time I went it cost me almost $300. And, I'm fairly positive that this pet insurance is the single biggest driver in the cost change. Putting a for-profit company between me and my vet to cover every single transaction is bound to raise prices. It has to, because there are now 2 people who need to make a profit instead of just one.

I completely agree with Frank that we would be better off if we had a system were routine care was covered at arms length between the patient and doctor and insurance covered things that were unexpected. But, we don't have that system and trying to operate that way in the US is a good way to go bankrupt.

Regarding the car insurnace thing, if you don't have a car loan then having collission is a choice. 9 times out of 10 it pays not to have it. But, when your car gets hit, you may wish you did. I take care of my cars and I find they are far more valuable to me than the book value. But, it does get to a point where collission doesn't make sense. Regarding liability, I personally think you're nuts to carry anything less than $100k and really you should carry closer to $200k. I carry $500k myself. You have an accident and someone sues you, unless you are a very rich person there is no way you are covering that difference out of pocket. You cause an accident and you can blow through that $100k coverage really, really quick. And then people start coming after your assets to get their money. The incremental costs for the extra coverage is not that much. Better to carry the extra liability insurance in my mind.

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