The Price of Insurance

Yesterday, our daughter’s phone was stolen. Her bag, along with some others was rifled through. Obviously she is pretty upset, however we did something we don’t normally do on consumer products. We bought insurance.

My gut feeling is that most extended warranties or insurance on goods is a waste of money. I wouldn’t go so far as to call it a scam but I don’t think it’s far off.

So why did we do something different with our daughter’s phone? The main reason is, well, teenagers are teenagers. Taking a $900 electronic item to school every day, plus parties, the mall, the pool is an inherently risky activity. We figured there was a pretty good chance that over the 3 or 4 year life span of the phone something would happen.

The insurance itself is $9 a month (so 1% of the phone cost). Our deductible is $225, dropping to $168, then $125 after 6 and 12 months of no claims.

We put the claim in last night, it went pretty straightforward, and unless there is an issue she should have a new phone tomorrow for $168.

For piece of mind this felt like a reasonable deal.

So why wouldn’t we do this for other consumer goods? The main reason is that TV’s and washing machines are not portable. The risk of theft or damage is much smaller. We also didn’t purchase insurance for own phones. We typically don’t take our phones to quite such risky places as a high school.

This got me thinking about other types of insurance. What is critical and what is not. Obviously in the US you need health insurance. Car insurance is required and of course house/renters. But beyond that, is any other insurance required?

The big one is of course life insurance. I’ll be honest we currently don’t have life insurance. We used to have it through work, but since retiring we have not purchased new insurance. The main reason for having this is to replace income in the event of death or serious injury. We don’t have any outside income so we don’t feel we really need this at the present time.

The only other type of insurance we will probably purchase down the line is long term care insurance. Staying in a care facility once we get older is expensive, so we definitely think this is something worth doing. Like most insurance the earlier you get this the cheaper it is, however you typically can’t purchase this until you are in your fifties.

Insurance can be important in some aspects of life. However it’s worth checking what is essential and actual useful to you, and not just marketing.

 

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