Self-insuring revisited... If you can afford to do it, it's likely worth the risk
Bottom Line: Recently I addressed the topic of "self-insuring" on back of research demonstrating Floridians as being the least happy with their insurance products. It's been awhile since I covered the topic and based on feedback I wanted to dive in a bit deeper.
There's a reason Warren Buffet has always loved the insurance business. It doesn't get a lot better than getting paid money upfront that you can invest and benefit from with the potential that you'll never have to payout any proceeds to the person paying you the premiums. As a society we're often conditioned to accept the "insurance mindset". We're sold insurance on products that cost as little as a hundred or two hundred bucks. This just in. That will almost never work to your advantage.
My general rule of thumb is to self-insurance when and where you have the opportunity to do so. In other words if you can afford the cost of a worst-case outcome from something that's insured, you probably shouldn't pay to insured it. Instead save and invest the money you'd pay in premiums for yourself (which is all the insurance company does anyway – they just reap the benefits rather than you) and create your own insurance fund that you reap the benefits of over time.
The average American spends 12% of their gross earnings on insurance products
That's obviously huge. Think about the impact of that money saved and invested overtime.
Median household income is just over $59,000
That means that the average household spends around $7,100 on insurance per year. If you had the opportunity to save and invest that money, having it available to you if you needed it, you'd have the potential for more than $400,000 in just twenty years. That's $400,000 that'd otherwise have benefitted the insurance companies. You'd have nothing to show for having paid those premiums. Now clearly there are certain products you can't opt out of IE auto insurance and home insurance if you carry a mortgage but if you can and you're inclined it's something that's worth considering.