Most people overspend on insurance. This article tells you where the best insurance values are and tells what kind of insurance everyone should have. It even reveals a couple of bargains!
When You Need Insurance — and When You Don't
Most people buy insurance for the wrong reasons. There are three really good reasons to have insurance.
One is when it's legally required, such as automobile liability insurance.
A second is when someone else (e.g. your employer) pays for it.
The third is when it protects you and your loved ones from financial disaster. A liability claim against you could ruin your finances for the rest of your life. A fire could rob you of all your belongings. A major illness could saddle you with lifelong medical bills. Protection from these are excellent reasons to have insurance.
Many people view insurance as a way to pay for things like doctor visits or a windshield repair. But you have to remember that insurance companies are in business to make a profit. In the long run, they charge more for premiums than they pay out. So when you can, you are smart to choose not to pay for insurance that covers items you could cover yourself. By restricting insurance to coverage for ruinous disasters, you can greatly reduce your bill. Generally, disaster-type insurance is much less expensive than insurance that covers lesser claims, because disaster-level insurance claims are much less likely. Price it out: You might be shocked at how much you save by dropping "comprehensive" coverage and raising your deductibles.
When you don't insure against the smaller losses, you are essentially "self-insured" — you are now responsible for them. In the long run, over the course of your lifetime, you are betting that the reduced premiums will more than pay for any claims you would have made. It's almost always a good bet, as long as you can afford the occasional expense when something happens.
Deductibles
Consider high deductibles for car and property insurance. A $1000 deductible means you only file claims for incidents that cost more than $1000. You are self-insured for the first $1000 and only paying for insurance beyond that.
Insurance companies charge heavily for lower deductibles because so many people choose them. But check the rates and you will probably find that the premium reduction for high deductibles is more than worth it — in the long run, you save.
Coverages
People tend to overspend on comprehensive and collision coverage for their cars. As a car ages, these coverages become worth less to you, but the costs don't decrease much.
In the case of collision insurance, consider how the value of your car falls. After four or five years, a car's replacement value — the amount it would cost to buy a used one of the same age in similar condition — falls to a few thousand dollars for most cars. No collision claim ever exceeds the replacement value because if repairs are more than that, the insurance company considers your car "totaled" and will only pay the replacement cost. The maximum possible claim falls every year. After year four or five, comprehensive coverage is a poorer value. As soon as the replacement value of your car reaches something you could pay (although with some pain), consider ending the collision coverage.
Comprehensive coverage also becomes less worthwhile as a car ages. One reason is the "totaled" value. Another reason is that as a car ages, you are more likely to live with a few dings and scratches. Even on a new vehicle, comprehensive is not generally a great value, if you can afford to pay for whatever might happen. Look at the premiums, think about how often you are likely to make a claim, and do the math.
Extended Warranties
If you by an extended warranty with your new television or refrigerator or phone, the seller is probably making more profit from the warranty than from the product! Extended warranties are almost never a good value. They tend to be expensive compared with the chance of a claim (if they weren't, you can bet the companies that offer them would change the plans), and the claims have lots of conditions and limitations.
The only times I recommend extended warranties are for new models that you think are especially fragile; mobile devices that you tend to abuse (e.g. a phone you're giving to a teenager you know to be careless); or where there is an additional value you can use (e.g. AppleCare Plus's offer of free tech support, if you're likely to use that.)
And here's a handy fact: Extended warranties can often be canceled. The provider will refund you the unused portion minus any claims you have made. (I think there are state (and perhaps federal) laws that require this between could not find any definitive source. I know AppleCare allows cancellation and refund and so do many automotive extended warranty programs.)
Values in Insurance
Insurance is priced according to relative risk for the insurance company. There are three kinds of insurance that are especially good values.
First is high-deductible homeowner's or renter's insurance. You have a lot to lose in case a major robbery, fire, or other major disaster, but fortunately, these don't happen very often so the premium costs are pretty reasonable. I think everyone should have one of these coverages, but choose the highest deductible you can stomach or you will be paying for small thefts and losses you could self-insure.
Second is liability insurance. The percentage of people who are sued in a liability case is quite small, so liability coverage is not very expensive. But it can wreck your future if it happens, so liability coverage is important. Look at higher limits. You will be surprised how little it costs to raise your car and homeowner's insurance from the legal minimum to liability limits of several million dollars. It's a wise precaution for the small extra cost.
If you have car insurance and a home, you should consider the third insurance value: An "umbrella" policy. This protects you against personal liability suits. The chances of such a suit are small but again, ruinous if it happens to you. This coverage is inexpensive and protects you from liability in case of accidents, incidental damage, and other actions that are beyond the reach of your car and homeowner's insurance. Everyone with significant assets should look into an umbrella policy. Insurers generally require that your auto and home insurance come from the same company and are called umbrella policies because they sit over your car and home insurance, the way an umbrella protects you from the rain.
— with contributions by Curt Weil and Russ Towne
The article mentions the idea that perhaps the manager doesn’t trust you. That’s probably the most important point. While “you can’t make someone trust you,” you can earn trust.
There are certainly bozo bosses out there and maybe yours is one of them. But you also have to ask yourself if you’re part of the reason (especially is this is a repeating theme in your career). Even if it's not you, you'll benefit from making it work anyway. If you consider your boss’s success to be part of your mission, you’ll do better. Even if this job is a dead-end, you can practice better boss-relationship skills and they will serve you throughout your career.
OK, end of lecture. I'm working at home today and better get back to it. ;)