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Adam Fayed Forum

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Is insurance a waste of money?

It depends. Firstly, you are right to say most types of insurance are dead money with a few exceptions.

Yet, at the same time, insurance works in a very simple way. You are paying a small amount of money to reduce unexpected risks. Take life insurance as an example.

Let's say you aren't wealthy, but you would like to make sure your family are OK if you die. A premium for even $1m worth of life insurance isn't expensive if you get it at a young age.

If you die, which might only be a small chance but it is there, your family will end up with maybe even more money than through an investment.

That isn't the case if you get the insurance when you are older, as your risks are older, but you get my point.

The same thing is true of health insurance. If you are based in a country without universal healthcare, medical costs can be hundreds of thousands of pounds or USD.

I know some people who have been bankrupted by this cost. Even some wealthy people aren't that liquid.

Therefore, insurance is a small cost to pay for a bit of security in the event of unexpected issues.

I don't think it makes sense to spend a high amount of money on insurance but 1%-5% of your income? It is worth considering.
In addition to the above point, you can get 1million pounds worth of life insurance for 30 pounds a month in the UK. And that is a fixed rate over 20 years.

So, if you die, your beneficiaries get 1million, and you have paid a maximum of 7,200. More likely than not you have paid less.

Now of course, there is a small chance you will die, and nobody would want to die earlier than expected.

Yet it does show the mathematical logic behind protection.