From Here to Financial Happiness

Day Thirty Everybody in the Pool

What is insurance? Forget all the fine print – the deductibles, the special riders, the exclusions, the nitpicky legal language. At its heart, insurance is about pooling risk. You, me, and a bunch of other folks contribute to a pool of money overseen by an insurance company. Those who suffer misfortune receive money from the pool. The rest of us pay our premiums and get nothing in return, which is what we want, because it's a sign that life is good.

Insurance can be used to protect ourselves financially against all kinds of misfortune, including our house burning down, getting sick, crashing the car, suffering a disability, getting sued, and dying and leaving our family destitute.

Depending on our situation, some of these risks will loom larger than others. For instance, if we're age 40 and die suddenly, it could be a major problem for those who depend on us financially, and carrying some life insurance would likely be a good idea. But if we're a 70‐year‐old retiree, it's far less of a financial problem. At that point, any kids would likely have left home. What if we have a spouse? He or she might be sad about our death but, if anything, would likely be in better financial shape. After all, the nest egg intended for two now has to pay for just one retirement. The implication: Life insurance almost certainly isn't needed.

Because insurance will – we hope – be a money loser, we want to purchase only the policies that are absolutely necessary. ...