A rule of thumb for buying insurance

Should you buy the add-on insurance for your iPhone that covers your loss in case you drop your phone and crush the glass?

Or should you get the one that covers your house, car or bicycle?

The insurance market can be a jungle to navigate sometimes, but I once learned a great lesson from a professor at finance school, that I have lived my life by ever since.

Only buy insurance that can save your life from ruin or total catastrophe

Would it be a total catastrophe if you had to pay for a new iPhone screen out of your own pocket, in case you dropped your phone? Probably not. Otherwise, you shouldn’t buy such an expensive phone.

What about if your house burned down? … That would ruin most people.

Make this distinction and you have a pretty simple and clear guideline for when you should buy insurance and when not to.

When you buy an insurance deal, it is essentially the same as placing a bet in a casino. The insurance company is the casino, and remember: “The house always wins”.

I know it would suck hard if your flatscreen TV fell off the wall and you had to go out and buy another one, but the odds of this happening is calculated into the insurance premium, and the odds are not in your favor.

Most people pay for many different insurance services that they never end up using because they have overestimated the likelihood of them getting triggered.

You don’t want to be that much of a sucker, do you?:)

Now would be the time to pay off some debt

Here is a time-sensitive post for you.

There is no question about it: times are good right now in the financial sphere. Stocks are going up (and have been for years), internet-articles about people living as daytraders are popping up all around, the Bit-coin craze is at an all-time high and housing prices are unfathomably ridiculous no matter which country you look to.

I am not here to try and predict a new crash in the market. I couldn’t possibly guess whenever everything blows up the next time. I am just saying that things aren’t at a low point these days.

The average amateur investor usually jumps on the train when everything looks shiny, and every banker in town is drinking champagne for lunch. But the capitalist/banker type is only partying right now because they have had stock in the marked ever since things looked a lot worse – so they are taking home a lot of profit at the moment.

So I believe that there is a lot of risk and potential for downside in getting invested in the market right now, and the rest of us, the regular mortal people, should probably stay out of it and allocate our money somewhere else.

You could look towards the safer option in bonds instead, but since the interest rates are so low in that field, your best bet is most likely to pay off some debt if you have any.

Next time you should get invested in the stock market is when there is blood in streets and one of your neighbors is getting thrown out of their house because they can’t afford it any longer. Then you invest in stocks or index funds, or what have you, like a real, cold and cynical capitalist.

Thanks for reading.