Don't buy insurance!
I realize that the title of this post is fairly controversial. This was partly to draw in the reader and partly because in some circumstances I truly believe it is not wise to purchase insurance (unless of course it is a legal requirement).
Insurance Market Scam
I believe that insurance is bad for your finances. Insurance markets exist to make money. This means that they need to take in more money than they ever pay out. To do this they need to work out on average how much each person will claim, add on a premium, and this is the price that insurance companies charge each person. Due to this (simplified) set up it is clear that on the average, a person will probably pay more into an insurance policy than they ever claim back over their life time. This is why I advocated third party car insurance over fully comprehensive (assuming the car is of a low enough value).
Some people may argue that "it's all well and good talking about the average person, but I am never the average person!". Furthermore they may point out that insurance may be useful if there is suddenly a large amount of damage that they would need to pay for.
However I would rebut this argument. Even if you find yourself needing a large settlement from an insurance company, you will eventually lose out in the long run as you will be charged higher premiums in the future. Over the years the insurance market will get their money back, like it or not!
Scam Solution: Insurance Investigation
So if insurance companies will always make more money off you than you will ever get back then should you ever buy insurance?
For some people who are totally risk averse I would suggest that for peace of mind they should buy insurance. For others who are not in a position such that they have contingency funds and emergency cash stored up then I would also recommend purchasing insurance as you don't want to find yourself in a situation where there needs to be a large payout and the cash isn't available and so you may have to take on debt, which is never good! (click to find out how to reduce your debt).
Build savings as a substitute for insurance
Finally, if you're in a position like me, and you have savings (click to find out how to build your savings) then you may wish to take an alternative route. Obviously in the case of car insurance it is a legal requirement to purchase insurance. Therefore I strongly advocate purchasing car insurance as you can find yourself in all sorts of trouble otherwise. However there are some forms of insurance such as phone insurance where I would suggest to you: don't buy it. Instead save the money that would have been spent on insurance each month. That will eventually be your contingency fund.
Readers, is there something wrong with my logic? Am I foolish for not purchasing insurance?
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