Can you insure yourself?

Question Can you insure yourself?

Answer Yes.

Complete Answer  To insure yourself is called self-insure.

The underlying principle of insurance is shared risk/loss. As an example: For every 100 people, one person will have a financial loss of $1,000 during a year. It may be you or one of the other 99, we don’t know. If everyone pitches in $10 ($10 x 100 = $1,000) there will be enough money in the insurance pool to cover the loss of $1,000 for that unlucky person. The other 99 people, each will be out $10 – shared loss. If you decide not to pay $10 to participate in the insurance pool, you instead set aside $1,000 to be used if you become than unlucky person, you are insuring yourself.

Please Note: If you choose to self-insure, you are still exposed to any potential risks and are financially responsible for damages or losses you may cause.

The most common form of self-insurance is an insurance policy with a deductible clause. Generally, the higher the dollar amount of a deductible, the lower the cost of the insurance policy. It would be prudent to set aside the amount of the deductible into a savings account to be used if you suffer a loss. As with other types of savings, I have found that having money automatically deducted from my paycheck and placed into a savings account is one of the easiest ways to save money.

Financial Literacy Knowledge/Skill

A person can self-insure by setting aside money for potential losses.

Comments or Questions

Thank you for visiting the Financial Literacy Life Skill site. Please feel free to submit comments and/or questions you may have about managing your money (Financial Literacy).

Next week’s topic: Should personal finances be discussed before you are married?

How do you pay for unexpected emergencies?

Question  How do you pay for unexpected emergencies?

Answer  Borrow the money from your PYF savings account, then pay it back.

Complete Answer  Unless you are an extremely lucky person, you will have unexpected financial emergencies in your lifetime. Use the money from your PYF savings account to pay for the financial emergency, then pay yourself back. The nice things about borrowing money from yourself (being your own bank) are you will always be approved, no paper work to complete, it is an interest-free loan and you get to decide the terms (amount and frequency of payments) of the loan.

Borrowing money from your PYF Savings Account. You should borrow money from your PYF Savings Account if the emergency expense is more than can be paid for from your monthly Spending Plan. For example: I could pay a $250.00 repair expense for the washing machine from my monthly Spending Plan’s Housing Expense. On the other hand, when my furnace had to be replaced at a cost of $3,600.00, it was more than I could afford in one month, so I borrowed the money for the new furnace from my PYF Savings Account. I amortized the $3,600.00 expense over three years. I paid back my PYF Savings Account $100.00 a month for the next three years.

Helpful Hint  Through no fault of your own, you could be the victim of identity theft and or bank fraud – unexpected financial emergencies. Because of the threats of identity theft and bank fraud, use two completely different banks (not affiliated with one another) for your checking account and your PYF Savings Account. If an account is compromised, you will still have access to some money from the second bank until the problem is resolved.

Financial Literacy Knowledge/Skill

  1. Paying for unexpected financial emergencies.
  2. Amortizing a loan to yourself.
  3. Using two separate banks to help protect yourself from identify theft/bank fraud.

Comments or Questions

Thank you for visiting the Financial Literacy Life Skill site. Please feel free to submit comments and/or questions you may have about managing your money (Financial Literacy).

Next week’s topic: How do you leverage your buying power to pay for big-ticket goods or services?