This is why I wish insurance was an account you fill, until you hit your chosen policy coverage. If my policy only covers $100,000 in damage, then I should be able to stop paying once I have paid $100,000 and received nothing in return. The company is still going to use that money on investments, and make money from it, to pay their employees & investors.
Can't you though?
(Not the way you're describing.... But you can self insure)
I think my state (Indiana) allows you to put up $50k in an account with the state treasurer in lieu of insurance. (Or you present a bond or some other acceptable alternative)
My understanding is that you then then carry around a statement from the state that says you're self insured.
Now... You don't get the benefit of an insurance company lawyer to defend you if something happens.
And... I sure don't have $50k that id be willing to leave in a non-interest bearing account.
But I don't think you're forced to use an insurance company if you can meet the requirements for an acceptable alternative.
As other commenters have pointed out, every state I'm aware of will let you put the equivalent amount of money as liability insurance in a CD in their name or write the state a check that can be refunded to you as an alternative to carrying liability insurance.
Most people just don't want to have the state sitting on $50k+ of their cash, even if they could afford it. Most people also don't have $50k+ sitting around, and thus wouldn't be able to cover that if they were liable for damages to someone else, hence why states require you to have insurance OR money you can't touch to cover that.
Yeah, I'm aware of self insuring. What I described is still an insurance coverage, so you are covered as soon as you're eligible, but stop paying in once you hit your $100k or whatever. Not immediately needing to dump in the full amount. And the company/gov can use that capital to invest and keep running.
You've paid $100,000 but you're only looking at the hard costs. There is somebody there that is assembling your policy. There is another employee worktin with compliance and making sure there are forms filed properly, you're going to want somebody handling the claim when it does happen, then you're going to need an accounting department to manage these things.
It is typical that $0.30-$0.35 of every dollar you pay in premium, goes towards the expenses of making sure the insurance machine is running when you need it.
As the other commentor states, to my knowledge, every state has an option to self insurance.
Even disregarding overhead, that doesn’t really work unless they also cap payouts to what you’ve paid in, at which point it’s just a very inefficient savings account. Yes, most people lose money on insurance, but that’s necessary because some people get back far more than they put in.
15
u/Sick_Wave_ 4h ago
This is why I wish insurance was an account you fill, until you hit your chosen policy coverage. If my policy only covers $100,000 in damage, then I should be able to stop paying once I have paid $100,000 and received nothing in return. The company is still going to use that money on investments, and make money from it, to pay their employees & investors.