The Little Book of Main Street Money: 21 Simple Truths that Help Real People Make Real Money

Chapter 19. Insurance Won't Make Us Any Money—If We're Lucky

The Best Protection Is a Plump Portfolio

Collecting on an insurance policy? So sorry to hear it.

After all, if you're collecting, that usually means something unfortunate has happened—a car crash, a disability, a hospital stay. What if nothing truly unfortunate has happened and you are getting a check from the insurance company? That is a sign you may be buying too much insurance coverage.

Insurance is a way to get somebody else to shoulder financial risks that we can't afford to shoulder ourselves, things like the house burning down or the family's main breadwinner dying. But this isn't the approach many people take. They use insurance to protect against minor risks and they endeavor to turn it into a moneymaker—and that leads to all kinds of foolishness.

Taking Cover

What foolishness? People purchase unnecessary coverage, they buy policies with low deductibles, and they try to make insurance an investment. Let's take each of those three in turn.

First, there are those small risks, things like our appliances going into meltdown or having to cancel the family vacation at the last minute. Yes, it is upsetting when the washing machine or the stereo head off to the electronics' graveyard. But in all likelihood, we can afford to replace them, so it hardly constitutes the sort of devastating financial risk that we need others to shoulder. The implication: Forget the extended warranty that the salesperson tries to get you to buy, ...