On Buying Insurance
A letter to my kids, and to a younger me who bought coverage without reading the math. Insurance feels like safety. But the insurance company almost always makes money. That single fact is the whole post: if they win on average, you can’t just buy everything. You have to choose.
The rule I landed on: insure the loss that would wipe you out. Pay for the small ones yourself.
Health: the one I can’t skip
We get private health insurance through my employer. We pay extra for it, but it’s a fixed necessity — the same bucket I flagged in FIRE, the one you can’t negotiate away.
We chose a high-deductible plan with an HSA — a health savings account. A big out-of-pocket bill is unlikely for us right now, so the low monthly premium wins. The HSA money goes in untaxed and grows.
Healthcare is the big wildcard in any early-retirement plan. One option I wrote about is spending time in a lower-cost country, where the same care can cost a fraction of the US price. That’s not a hack. It’s just where the price is lower.
House and car: crank the deductible
A deductible is what you pay before insurance pays anything. Raise it, and the monthly cost drops. So I raise it.
House insurance: high deductible. I’m covering the disaster — the fire, the total loss — not the small repair. The small repair I can pay myself.
It still surprised me once. A hail storm wrecked a roof. The claim was filed, the insurer paid out, and I thought everything was covered. Then the bill came: the actual replacement cost about double the payout. They covered half. The rest came out of pocket. And that was that.
That’s the lesson I didn’t expect. Even when you’re insured, the payout isn’t the loss. There’s a gap — the deductible, the depreciation, the fine print — and the gap lands on you. So “I’m insured” is never the same as “I’m covered.”
Car insurance: minimum coverage, high deductible, same reason. But here’s the part most people skip. The cheapest accident is the one that never happens.
I had a slow-speed collision once, drained after a commute stuck in traffic. My car was fine. The driver ahead came with a medical claim. (I told that story in the car post.) That taught me the real risk in driving isn’t my fender. It’s hurting someone else.
So I lower the risk itself:
- I sleep 8 hours. Healthy, safe, and it quietly lowers my premium too.
- When I drive, I drive. No distractions.
- If I feel sleepy, I sing out loud first. Then I pull over. In that order.
I even gave up camping — it wrecked my sleep, and tired driving isn’t worth a weekend.
Travel insurance: good on paper
This one I found only recently. On paper it looks great. In practice, the math runs the other way.
Think about who holds what. In an emergency, the insurance company holds the money. You hold the receipts. You’re the one collecting evidence, filing the claim, and waiting on approval — while you’re already stressed and far from home.
And the claim can still be denied. For anything I could cover with cash — a delay, lost luggage — I’d rather just have the cash.
The cushion under all of it
Insurance is a wonder when the loss is big enough to ruin you. It’s a slow leak when the loss is small enough to absorb.
So I keep emergency money. That cash is my self-insurance. It pays the high deductibles, the denied travel claims, the fender benders — all the small stuff, without a premium and without a fight.
Commercial insurance for the catastrophe. Cash for everything else. That’s the whole system, and it’s the same lesson as the house and the car: spend on what protects you, not on what comforts you.