By Dr. James M. Dahle, WCI Founder
I get accused all the time of being anti-insurance. Nothing could be further from the truth. While I'm no fan of mixing your investments with insurance—via high-commission products like whole life insurance, variable universal life insurance, index universal life insurance, and annuities—I have taught for more than a decade that if you have an insurance need for a financial catastrophe, you should insure well.
Recently, I was dealing with three insurance claims at once. One was for a break-in for a building syndication I manage, but the other two were claims on our personal insurance policies. Here's what happened.
Making Insurance Claims
The first of these was a claim for damage to our boat. Our favorite lake has fluctuating water levels. And when I say fluctuating, I really mean it. The level has varied by more than 110 feet just in the time we've been going there—35 feet in the last year (yay drought!).
Needless to say, that results in a lot of underwater obstacles. If the water is two feet higher, your boat will never touch that rock. If it is two feet lower, that rock is out of the water and easy to see. But at just the right level, it's essentially invisible until you hit it. Well, I hit one. I wasn't going very fast and nobody was hurt, but it was a pretty good smack. We puttered back over to our camp, and I pulled out my dive mask and went down to check it out. Not too bad: a little bit of gelcoat damage; the prop was trashed; and the rudder was a little stiff. After an underwater propeller change (I wish I could say that was my first time doing that), we enjoyed the next four days at the lake before heading home and dropping the boat off at the shop.
Imagine my surprise (not really) when the shop called with a quote for more than $25,000 in damages. It turns out repairing gelcoat is really expensive and so is swapping out a very slightly bent prop shaft. Have I mentioned that boat insurance might be one of the best deals in the insurance world? Our premium is $294 per year. The $5,000 deductible doesn't even cover repairing minor gelcoat damage. It costs more to insure a $5,000 beater than it does a six-figure boat. It's amazing. I think it's the best value for insurance of any policy I've ever owned.
Later that month, one of our family members needed to spend some time with bright lights, cold steel, and an orthopod. If you've ever had surgery, you know it's kind of expensive. The surgeon and anesthesiologist bills aren't too bad. The preparatory imaging and radiologist bills aren't too bad. But that bill from the hospital, wowza! Even after it runs through insurance for their negotiated price, it's still enough to give lots of families serious financial strain. Our high deductible is nowhere near that cost. Even our out-of-pocket maximum for the year is nowhere near that cost.
Not Having to Worry
This brings me to an unsung benefit of having insurance. With insurance, you don't have to worry about the financial impact of your misfortune, and you don't have any incentive to cheap out. You get the best of everything. If I'm going to pay my $5,000 deductible on that boat, it's going to go to the best gelcoat shop in town, and they're going to make it like new. There's no incentive to just put a little patch on it and call it good. Or to just leave it since it's on the bottom of the boat anyway. Fix her up, baby, and make her look great!
Same thing with the surgery. We want the best of everything. The best surgeon. The best anesthesiologist. Heck yes, we want that CT scan. Why yes, we'll have it at that nice, new hospital. Five nurses to help out with the case? Sure, why not? Did you know they make gowns these days that plug right into the bedside Bair Hugger? I didn't, but I do now!
We actually had a marvelous surgical experience (special shout out to Drs. Traske Muir and Randall Bready). What's the price? I have no idea, and I don't care. Actually, I do know the price. It's our maximum out-of-pocket for the year, and I'm OK with that because I don't think we've ever hit it in the past. (Which probably explains how our HSA has grown to six figures over the years). Added bonus? The rest of the healthcare we consume this year is now free! My son tells me he's not going to drink milk the rest of the year in hopes of a fracture just to get our money's worth out of it. Incidentally, check out this Explanation Of Benefits statement (EOB):
Katie is now the proud owner of a plate and six screws. But four of the screws cost a penny apiece, and two of them cost over a grand a piece. Making screws is good business if you can get it, but you better make the right ones!
Seriously, though, it's never fun to have to use your insurance benefits. I'd much rather not have to deal with damages, injuries, and the hassle of the claims. Although I suppose that maybe it's not as painful to have your boat out of commission all summer when you're on non-weight bearing status anyway, so I guess if you have to damage both, maybe it's good to do it all at once!
The Hassle Factor
Speaking of hassles, the most valuable thing an insurance company can do for me is a hassle-free claims process. It rarely happens, though. It was particularly bad with this boat damage claim. The claims adjuster actually refused to repair all of the gelcoat damage on the bottom of the boat because he didn't believe that a boat could have more than one point of impact on a rock.
He claimed it was “dock rash” on the bottom of the boat and was thus normal wear and tear. I have no idea how you hit the bottom of the boat on the dock. It was bizarre. No amount of protesting or arguing would change his mind. There was no appeal process or attempt at customer preservation. After talking to the dealership and gelcoat dealer, I learned that Progressive boat insurance has really gone downhill the last couple of years as far as taking care of its customers at claims time. I wish I'd asked them before the claim. Learn from my mistake. If you have Progressive like we did, I suggest you change. Like we did. Only we did it too late. But the hassle factor is certainly a great reason to self-insure when possible.
Insurance is all about transferring risk. Could we afford to repair that boat out of pocket? Yes, thanks to a couple of decades of diligent saving and investing, we absolutely could. We could even pay cash for that surgery, I suppose. But it sure is nice to not be paying for it (at least in addition to the health insurance premiums we buy each month). More importantly, however, it was awesome to get the best of everything without having to even think about the cost.
There's some value there that I'm not sure I ever really considered before.
What do you think? What was the last insurance claim you had? What did you like and dislike about the experience? Comment below!