How self-insuring pays off
Not paying an insurer but keeping your own stash for emergencies can save you thousands over the long run
One of the best savings tricks I was taught was to call my short-term insurance company every year and ask for a rate decrease.
Short-term insurance covers your home contents and car, and every year they’re worth less as they age and get used. Sure, your vehicle still has utility, as does your fridge and other household contents, but they’re depreciating assets, and so the cost of insuring them should be cheaper.
The phone call is usually along the lines of me phoning and asking for a rate reduction. The company always asks if I have got a comparable quote at a better rate, which it would usually match or beat. But I don’t even bother with getting another quote because my insurer always reduces my rate, without fail.
That said, I no longer even insure my household contents. Not because they’re worth so little, which they probably are as I live in a small apartment, but because the maths does not add up.
Now, when I was a youngster I did not self-insure. In fact, I insured everything from my laptop to household contents and cellphone. This was because I wouldn’t have had the resources to replace or repair a damaged or stolen item. But decades later I have a chunky emergency fund so I selfinsure pretty much everything.
Then, last month, wine got spilt on my wife’s laptop and the repair bill was R17,000, which I had to cover. Not fun at all. But I ran the maths. The money I had “saved” by self-insuring since my last mishap more than a decade ago was well over R100,000. So, I was ahead of the numbers, even if that R17,000 was painful at the time.
Importantly, I do not self-insure my health or vehicle as both could result in staggering expenses I might be unable to cover. Even an older car can hit a fancy luxury German sedan and you’d be liable for its repairs. As for health care, we all know how illness can wreck a bank balance, so I keep that area fully insured.
Another important point is, don’t just rush out and cancel policies after deciding to self-insure. Yes, you’ll be saving money every month, but what if disaster strikes in month one? Can you cover that cost?
So you need to have an emergency fund you can dip into to replace the item. It’s also not necessary to insure, or have sufficient emergency funds to cover, everything.
My wife’s laptop needed replacing as she uses it for work. But a PlayStation is not likely to be important to your earning ability. Sure, spilling wine on that would be grim, but you could tough it out while saving to replace it, or even use it as an excuse to save for an upgrade.
So, call your short-term insurer about paying less for the same benefits and start investigating self-insuring, if your bank balance allows it.