The Coverage Trap

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Avoiding debt is key to maximizing your freedom.

If you haven’t got a massive mortgage/rent/car payment to cover each month, you will probably have some money in the bank. You will certainly be able to save – to accumulate capital – which gives you leverage as well as options. You will for instance have the freedom to not work at a job you don’t particularly like or with (and for) people whom you dislike.

You are much more free to work as you like.

I here use myself as an example. I freed myself when I moved to a rural area with a much lower cost of living;  I used the money I made from the sale of my old house in the expensive suburbs of Northern Virginia to buy a place outright in The Woods – as I like to call my southwest Virginia home. 

I am now free to publish my own “newspaper”  – EPautos.com – and  can write about things I could never have gotten away with writing about when I worked for a major newspaper – and was dependent on the income from that job.

No more bending knee.

Another perk of being debt-free is that you can get by on not very much. This takes most of the stress of modern life off one’s shoulders.

But how to avoid debt?

One way is to avoid insurance – which has been oversold to people on the basis of Fear peddling. The insurance mafia has been wildly successful inculcating a pathological dread of imminent disaster and perpetual threats coming from multiple directions.

Home, car, life and health.

Are you covered?

Most of the time, of course, nothing catastrophic happens. The insurance companies know this and bank on it. Specifically, they bank on your not realizing it.

Put another way –  the odds are in your favor, as far as losses. That it is far more likely you will pay in – for decades, ideally – and that they will never pay out.

This makes insurance companies among the most profitable cons going. Kind of like Social Security – but even more so because with SS, there is at least the possibility of eventually getting something back.

Not much, but something.

With insurance, you are 100 percent guaranteed to get back nothing.

Which is why smart people – people who understand the actuarial concepts of odds and risk – skip being “covered” to the extent this is possible.

Instead, they put their money in the bank. This serves two excellent purposes, the first and obvious one being the saving of money that would otherwise be spent on . . . nothing.

Which is hugely profitable for those selling it.

But it is a very bad investment for the person buying it.

By putting aside the money rather than spending it on nothing, the money will still be available to spend on something – whether it’s a cracked windshield, a broken leg or a tree that fell on the house.

In other words, it will serve as insurance.

But if it never becomes necessary to spend it on accident damage or health issues – which is a very good bet for most people – then the money will be available to spend on other things.

It can be leveraged to make more money.

That is an investment.

Consider as an example home insurance – which is still optional if you don’t have a mortgage. If you pay $1,500 annually – this is the ballpark average for most single family homes – you will have spent almost $38,000 after 25 years – not factoring in the money you could have made investing that money or just earning interest on that money. How likely is it that you would have had to file a claim amounting to that sum during those 25 years? Wouldn’t it be nice to have that $38,000 at the end of those 25 years? Or even the $1,500 extra in your pocket each year for the next 25years?

This, probably, is exactly why certain parties cannot abide insurance being optional. It is their goal to make all insurance mandatory.

Because good ideas always require force.

The fact that insurance is increasingly hard to sell on the merits – and that many people would surely decline coverage if they were legally permitted to say no thanks – says a lot about the true nature of insurance as it exists today.

Which brings up an interesting aside:

As insurance has become compulsory, it has become even less affordable. For two reasons, the first being the obvious one – that when a seller can force you to buy something, he can and will charge you more for it. What do you suppose the price of a cup of coffee at Starbucks would be if the government decreed you had to buy coffee at Starbucks?

The second being that when insurance is used to pay for routine things like stone-cracked windshields, physical exams and trees that fall in the yard during a storm, it is no longer insurance.

Insurance is – was – a way to distribute the cost of an unlikely and catastrophic event among a large group of people, thereby lowering the cost of the coverage for the same for all.

Back when insurance was legitimate. Not a government-enforced scam.

Today, the actual though unstated purpose of insurance is to keep people paying endlessly for “coverage” – which becomes ever more costly precisely because everyone is using it to “cover”everything  . . . stone-chipped windshields, flu shots, tree branches in the yard, etc.

Which serves to keep the “customers” (at gunpoint) in debt.

Which serves to keep them from being free.

. . .

Got a question about cars – or anything else? Click on the “ask Eric” link and send ’em in!

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15 COMMENTS

  1. It used to be that if you had the dough, you could put up a bond in lieu of buying insurance. Benefit was that it was still your money, and the presumption was that you’d drive safer *because* it was your money at risk. Downside was that the funds were tied up and inaccessible (which .. if you were rich enough, wasn’t a big deal)

    AFAIK that’s no longer an option.

    Myself, I increased my coverage and my deductible a few years ago when I had the CR-V. I was in traffic next to a $140k SL600 and thought to myself “Any cop is going to pin me with the accident instead of the rich guy”. The key is increasing the deductible (much like with health insurance) to reduce your costs. You just have to make sure that you have that money in savings.

  2. Insurance is definitely a tool to keep the productive working. Forget about living on a low income in most of the country, insurance makes it impossible almost everywhere now. When you combine all the various insurance payments, especially when there is health insurance involved, it can be thousands of dollars a month. That minimum wage job may not even pay that amount, let alone pay for anything else.

    One thing I noticed when I first moved here (Indiana outside Chicago) in 1997 were these single guys that lived simply, and rarely worked, maybe working 2-3 months a year, or did odd jobs (guessing off the books). Most of them at least had a car and most even owned a smallish house (or had one they had inherited from late parents, heck I know a guy that was born in his own bathroom!). But they could get by on very little, at no expense to anybody else.

    Not too many of them around anymore, most that are left are the guys hitting retirement age. You really can’t do it as a younger guy anymore, because even a “cheap” house around here is $80-100k. The COL is too high, even without most insurance. But urban areas are largely out for low cost living in this day and age. Even with “capped” property taxes, those can be over a thousand a year on a $80k house.

    So that leaves rural areas for the most part, which even part time employment is hard to come by. And far fewer employers willing to pay off the books too.

    • Hi RichB, If I could become a young man with almost no possessions again, I would buy a reliable delivery van and convert in into a mini-RV on the inside. This is sort of like what Bill is doing. I would then travel to a high wage/ high cost of living area of the country to become employed. As a truck driver I can tell you that parking areas within many large business parks can be found. Some of those businesses will be for sale, and nobody will really notice a delivery van parked in that lot during the night or on weekends. During the day, me and my van have disappeared to my place of employment. Doing this for only 2-3 years will build up my savings account very well if I remained frugal. I could pay to take showers at a truck stop, or get a gym membership for that, or join the YMCA. After I had saved a huge chuch of money I would move to where I actually wanted to live and buy a place outright! Why did I not do that back when I was young? I never thought of it.

      • I wanted to do this but i got married and had 3 kids. I completely agree go off grid while you can. Women like homemaking and kids need the space.

  3. Eric wrote:

    “As insurance has become compulsory, it has become even less affordable.”

    And brother, ain’t that the truth.

    Here in NH we are one of the few states that does NOT have a mandatory auto insurance law. You are not asked by Officer Friendly for an insurance card when stopped, you do not have to have any form of insurance at all to legally drive. Consequently, insurance is relatively cheap, and results in an uninsured motorist rate of under 10 percent. Using myself as an example, since I just paid up for another six months: for a 2013 Jeep Grand Cherokee with full coverage: uninsured motorist, collision/comprehensive, $250,000 of liability for vehicle damage caused by me, $500,000 of personal injury caused by me, costs $560 a year.

    Homeowners, same thing, no NH government requirements, just whatever a lender requires. It runs about $600 a year, for a half million of coverage on the home and a half million of liability coverage for the home and 12 acres of land is sits on.

    Eric wrote:

    “Today, the actual though unstated purpose of insurance is to keep people paying endlessly for “coverage” – which becomes ever more costly precisely because everyone is using it to “cover”everything . . . stone-chipped windshields, flu shots, tree branches in the yard, etc.”

    Which is why those policies of mine are cheap, one reason anyways, I keep the highest deductible on all of them, so they can’t be used for that nonsense.

    The only insurance that high deductibles doesn’t seem to help lower costs is the ever-fucking Uncle Sucker mandated “health” insurance. Combined employer/employee cost, using myself as example, with no major claim ever made, was over $15,000 last year.

    Talk about being enslaved by debt you never agreed to or never wanted.

    Between property taxes and Uncle Sucker care, you can never be out of debt, unless you just want to chuck it all and go off grid in the woods somewhere, and I’m too old and worn out and beat up to do that shit.

    • Hi AF,

      I cancelled my home insurance years ago. Have already saved at least $8,000. What are the odds I will ever have to deal with damage costing that sum? Slim to none. So, by-by insurance.

      I don’t have health insurance, either. My “policy” is to live reasonably; I don’t smoke, drink only a little and exercise often. I have no chronic health problems – and whatever acute problems arise, I can probably afford to “cover” by cutting a check . . . because I don’t cut checks to the insurance mafia.

      I’d cancel my car insurance if I could legally so do. I’ve not had an accident in 30-plus years. I imagine the odds of having one in the next 30 are pretty slim. It’s a risk I’d happily take.

      Not having the home/health “coverage” reduces my cost of living by at least $500/month. That is almost enough to cover most of my monthly expenses (food, electric, etc.).

      In other words, by skipping the “coverage,” I can afford to live.

      • Eric,

        I envy your position, I really do, sadly I still have a mortgage so I’m on the hook for homeowners insurance.

        What I wonder about is how people get by paying monthly, what I pay in a whole year.

        I’d drop most of mine as well, if it wasn’t for the sue-happy masses looking to score a big payout, so I keep the liability coverage.

        Reminds me of that scene from “Enemy of the State”:

        “We spend hundreds of thousands of dollars every year on shyster attorneys just like you. You know why? Because of shyster attorneys just like YOU!”.

        • Anti-Federalist, there are other options. You are now experiencing the situation where YOUR PROPERTY owns YOU, which has YOU trapped into paying excessive taxes and insurance! You can sell your place and live in an RV like I do presently. I intend to rent some fixer-upper pasture to raise small livestock, and of course I will be moving my 30′ pull behind there. For now, I live in a trailer park which has full sized mobile homes on lots large enough for them and has the too-small lots reserved for long-term RV owners. I say long term, but I have no contract to live here any certain amount of time. Regular RV rental parks provide all utilities except for propane at a premium price even for monthly rental. Long term in my case means that I only pay for the lot, which includes water and sewer. I have to mow my own tiny lawn, pay for trash services, Internet, and electric. This saves me $200 per month except for the worst months for electrical use when I only save $100 per month. RV tourists don’t want to set up all of those things for obvious reasons. I live in Missouri, so my prices may not be the same as in your area. My total expenses excluding propane which neither type of place covers is usually about $280 per average month.
          Here are some ideas for you to consider: Startpage (rather than Google) Boondocking, http://www.housesit.org/ , and check out these sites:
          70 Year Old Builds Innovative Off-Grid Tiny House For Debt Free Retirement
          https://www.youtube.com/watch?v=n-K8l43sZgA
          How to have a home with no house payments and no utility bills!
          https://www.youtube.com/watch?v=fJsDOD0dTQI

      • > Not having the home/health “coverage” reduces my cost of living by at least $500/month.

        Way more than that. IIRC you’re a few years younger than I am. Go price some “Bronze” coverage plans – the cheapest I could find was $700 and it wasn’t terrific, with 50% copayments.

        I’m probably going to end up paying the $2k penalty this year for not having coverage for several months. It’ll be cheaper than paying for the plan.

        • Hi Chip,

          Screw paying the bastards; the fine is unenforceable as I understand it. The only way they can make you pay is to withhold it from any refund they owe you. But if there’s no refund they can’t do a got-damned thing about it.

          • Far as I know it’s unenforceable. I never paid, and nothing happened. And for the time being (until Trump leaves office) there won’t be a penalty. I am sure it will be back with a vengeance with the next regime though.

            P.S. Everyone should also downsize their withholding. Nobody should be getting a “refund” of their own money. You are giving Uncle Same an interest free “loan” if your letting him hold YOUR money. Plus it makes it easier for them to grab it for some other reason too (lost a $1500 refund to a grabby non late student loan once, never again). It’s better to owe a little at tax time then to get a four figure “refund”.

  4. The thing that galls me about insurance is not withstanding the compulsory nature, but the fact that because everyone has it, everyone has to have it. Much like a mortgage, because it is just accepted that you have insurance means everyone who has a business run on insurance payouts inflates their prices to match the new “market” price.

    And of course there’s the whole practice of medical companies setting a price insanely high so that the insurance company can negotiate a lower price. Start out at 100X margin on your dubious miracle drug and when the insurance bureaucrat negotiates a price that’s only 48X margin he can crow to his boss about how much money he saved the company. Meanwhile retail is lucky to see a net 1% profit these days.

  5. i 100% agree on that. I’ve been hating the insurance mafia since i became a driver at age 16 in a 1989 mazda rx7. The car was a the same age as me at the time. I was born in 88. Now I’m a mortgage owner with the mandatory home insurance but no car payments for now. I’ve been buying cars in cash and now i only buy through auction, copart. I never have nor want to buy from a dealer and i never want to buy it at market price. They are mere utilities albeit a fun one if you look for them.

  6. I agree fully with Eric that avoiding debt is the key to freedom. Personally, I don’t make very much, but I also don’t owe anybody a damn dime. My house is paid for as are two trucks, two cars, and two motorcycles. Being one’s own mechanic and keeping secondhand vehicles running is a big part of that. That being said, I presently have a car I bought brand-spanking new sitting in my driveway. I’ve had it a year and only put 8,000 miles on it, preferring to drive my 18-year-old beater truck for a commuter vehicle to “save” the new one.

    However, I have an opposite view on insurance. I do not agree with compulsory insurance, and I freely pick and choose which vehicles I want to put full coverage on. However, relative to the risk of my losses, insurance is cheap. My homeowners’ insurance is only about $450 a year. My mortgage is paid, (20 years early) so no insurance is required. And I have enough money in the bank to build a new house if mine burned down. But for $450 bucks you can bet that the very first thing I pay in full is my homeowners’ insurance.

    And I buy EXTRA insurance beyond state minimums for my auto and cycle policies. If I get hit by an uninsured driver, I don’t want to be screwed. And I don’t want someone emptying my bank account and leaving me penniless in retirement if I hit them.

    If you’re paying too much for insurance, then shop around. The internet is your friend. If you’re paying $1500 for homeowners insurance you’re either getting screwed of living in a half-million dollar home, in which case the coverage might be worth it. But the only way you should go without it is if you’re stone broke and have nothing for anyone else to take from you.

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