Creating a budget for yourself that is both realistic and flexible is easier said than done. You need to factor in your income and all your expenses and know that, even with the best planning, unexpected expenses can occur.
For some of these unexpected expenses, insurance is meant to swoop in and save the day, allowing you to pay a deductible while your insurance coverage pays the rest. But is that always the best and soundest financial plan?
Here we’ll take a look at the difference between having insurance or simply saving the money you’d pay for your premium and putting it into an account each month. We’ll look at the pros and cons of each strategy so you can make an informed decision.
Keep in mind that the latter could leave you with nothing should a large expense occur. If that were to happen, the only way you may be able to afford it is if you suddenly get a large windfall from a family member, lottery, or by finding casinos with no deposit bonuses that offer a lucky break. And the chances of that happening, especially right when you need it, are pretty slim!
Pros of Having Insurance Coverage
The whole point of insurance coverage is to make it more affordable when unexpected expenses pop up in life. The most common types of insurance coverage in the US are auto, home, and medical insurance. An unexpected expense in any of these categories can quickly add up, costing hundreds if not thousands of dollars.
If you flip through the news on any given day, you’ll read about someone who has gone broke or is in debt due to an unexpected healthcare expense or home repair job. Fortunately, with insurance, all you will need to pay is the deductible, which varies based on the type and amount of coverage you choose.
This leads us to the next pro, the option to personalize your coverage. You can choose to get base coverage to keep your premiums affordable or opt for top-tier coverage if you think that makes more sense in your life. Just remember that the deductibles will also vary based on the amount of coverage you choose.
Having insurance also helps to keep your bills regular. You know how much your premium will be monthly, so it can be easier to budget. Yes, you’d still have to pay a deductible if you use the insurance, but at least that won’t be a monthly expense.
Pros of Saving Your Premiums in a Bank Account
Just as there are pros to having insurance, saving the amount of cash you’d pay for your insurance premium payment also has pros. The idea is that you take that money you’d pay for insurance coverage and put it in a savings account instead. You will be working to build a slush fund that can cover you when expenses pop up.
By depositing the money in a savings account, you also have the added benefit of earning interest on it. Each month, you’ll watch that fund grow, and it holds value. When you pay an insurance premium, that’s money you may never see again. If you don’t use your coverage, you don’t get that money back. So, in some cases, it can feel like you’re giving your money away.
Saving money also gives you the ability to save more or less as the times dictate. Maybe you are tight on funds, so you can adjust how much you’re saving. Once your finances loosen up a bit, you can save more. It’s customizable.
Cons to Insurance Coverage
We’ve already touched on some of the cons to insurance coverage, with the biggest being the fact you may never use it. If you purchase a house and spend years paying for insurance coverage, there’s no guarantee you’ll ever need it. If you add up decades’ worth of premiums without ever using it, that can be a hard pill to swallow.
Insurance coverage can also be extremely expensive depending on where you live and how much coverage you need. The monthly premiums may not be affordable.
Then there are places in the country where insurance coverage, in particular home insurance, is next to impossible (if not completely impossible) to get. Think of places like Florida where home insurance is becoming harder and harder to secure. Florida is known for suffering significantly from major storm damage during hurricane season, so many insurance providers have pulled out of the state.
There is also the issue of “red tape.” If you’ve ever had to use insurance, then you know it can be a difficult and long process to get approval and then receive payment. Insurance providers aren’t in the business of giving away money easily!
Cons to “Saving” Your Premiums in a Bank Account
As for the cons to saving your premium payments into a personal savings account, the big one is that you may not be able to save enough money. Just imagine your house suffers catastrophic damage in a storm or fire. There’s no way that saving a few hundred dollars a month will be able to cover that kind of expense.
You also have to stay committed to depositing payments to your savings account regularly. A good idea is to set up an automatic transfer of funds so that you don’t have to try and remember to do it manually.
There is a very real risk with saving up your premiums, but for some people, it can make sense and may even be their only option.
In Conclusion
Many of the decisions you make in life are simple in that there is a clearly right or wrong answer. When it comes to securing insurance and monthly premium payments vs. investing that money in a savings account, however, there isn’t a one-size answer that works for everyone. The answer exists in a grey area that requires you to carefully think through both options. At the end of the day, you need to feel confident in your decision.
