Insurance in everyday life

Insurance stops being theory the day you own something worth protecting. For most people your age that means three things: a first car, a phone, and the growing pile of belongings in your room. Each one teaches a different lesson about when cover is worth it.

The first car decision

The choice is rarely whether to insure. Driving with no cover for the damage you might do to other cars is carrying a ruinous risk, and lesson two explained why that is the one mistake to avoid. The real question is how much to insure: third party property damage, which protects you from the ruinous risk of damaging someone else's car, or comprehensive, which also covers your own. The younger you are and the cheaper your car, the closer that call becomes, because young driver comprehensive premiums are high and an old car is cheap to replace. There is a proper way to run those numbers, and the case study at the end of this topic does exactly that.

The phone insurance test

Phone insurance is where the insure only the ruinous rule earns its keep. A cracked screen or even a lost phone is annoying, not ruinous: the worst case is a few hundred dollars for a decent replacement. Add up the monthly cost of phone cover, the excess you would still pay on a claim, and the exclusions, and the same money going into your own emergency fund often protects you better. Covering small losses from your own savings is called self insuring, and your emergency fund is exactly that: your own personal pool, with no exclusions and no excess.

Run it as a sum, with illustrative numbers. Say the cover costs $15 a month, which is $180 a year, and a claim still charges a $130 excess and only lets you claim twice. Pay for two years without a claim and you have handed over $360 for nothing. Break a screen in that time and you pay the $130 excess on top of the premiums, so a repair that would have cost maybe $200 out of pocket has cost you more once the premiums are counted. Now imagine putting that same $15 a month into your own savings instead. After a year you are holding $180 that covers a screen with money to spare, and if the phone survives, the $180 is still yours. That is the whole case for self insuring the small stuff: you keep the money you would have paid an insurer, and you cover the loss yourself when it is small enough to absorb.

Your stuff, especially in a share house

Now do the opposite test. Add up what is in your room: laptop, phone, clothes, headphones, bike, guitar. For most students the total lands somewhere between $3,000 and $10,000, and a house fire or burglary could take all of it in one event. That is getting toward ruinous territory, and contents insurance for a renter's own belongings is often cheaper than people expect. When you move into a share house, it is worth a real quote rather than an assumption either way.