If You’re a Mormon, Do You Still Need Insurance?
by Richard P. Halverson
The battle is spiritual, but temporal issues count.
Latter-day Saints understand we are here in mortality to experience opposition. We know experiencing problems is part of the plan. Some of the opposition is spiritual and some of it is temporal. On the spiritual side, there is an ever-present risk we will encounter some temptation and give into it. The result is a potentially devastating spiritual loss. On the temporal, side there is an ever-present risk we will encounter some hazard and sustain damage. The result can be a potentially devastating temporal loss.
We know that by following proper steps of repentance, our spiritual losses will be completely paid for through the atonement of Jesus Christ. There is also a mechanism where many of our temporal losses can be paid for. The temporal mechanism I refer to is insurance.
I am anxious not to indulge in the analogy between the atonement and insurance any further. There is no comparison. What the Savior did for us and what we must do to take full advantage of it have no temporal comparison. Indeed one of the challenges we face in comprehending and fully accepting the atonement is that there is nothing else in our worldly frame of reference to compare it to.
I do mean to point out that we are all subject to losses, both temporal and spiritual. It is part of the plan. Sooner or later, if you live long enough, you’ll suffer some of both. In both cases, there are prudent things we can and should do to minimize our risk of loss. In the case of temporal losses, we can avoid some of the most devastating problems through insurance.
So Mormons need insurance just like everyone. But we do have an edge. Just about every important line of insurance offers discounts to people who live the Word of Wisdom, although they don’t call it that. Additionally, obeying the law and living prudently will reduce the claims you have over the years. Insurance companies will give discounts for that, too.
Insurance is really an exchange of loss. I exchange an uncertain but potentially devastating loss, like my home burning down, for the certain loss of a regular insurance premium. Hopefully, my home will never burn and my premiums will all be wasted. However, there is always a risk. The insurance company may insure a million homes. Out of that large number some of them are going to burn. So a house burning is a certainty to them. However, a house burning is not devastating to the insurance company because they have premiums from all their policyholders to pay for it.
This principle of exchanging losses with an insurance company is important in our society. Just about everyone who owns something valuable, earns their own money, or has someone else depending on them needs insurance. Most of us need many different types of insurance. In fact, most of us have such a strong need for insurance that third parties force us to have it. For example, the government forces you to carry liability insurance on your car, and your bank forces you to carry homeowners insurance on your home.
And for everyone who needs insurance, there is someone who hates paying for it. After all, an insurance premium is a loss to you. It is money out of your pocket with no identifiable benefit. May I say, however, one of the finest wishes I can have for you is that every penny of every insurance premium you pay is totally wasted. This would mean you would never have your house burn, your car stolen, your spouse in for surgery, or your loved one die. You get the point.
There are two things to avoid when buying insurance: Don’t under insure and don’t over insure.
Since all you are doing is trading an uncertain loss for a certain loss, you want to strike just the right balance if you can. Over insure and your known losses are too high. Under insure and you are exposing yourself to risks you can not afford. The trick is to use some imagination, honest self-analysis, and common sense in figuring out just how much unknown loss you can afford to risk getting hit with.
For instance, there is always a risk a tree will fall on your car. Ask yourself, “If I had to pay $100 tomorrow to repair my car, would it cause me serious financial harm? How about $500?” The question is not whether you would like paying out $500, the question is could you do it without serious financial harm? Maybe your amount is $1,000.
Let’s assume you can handle $500. A review of your policy shows that you currently have a deductible of $100. That means you pay the first $100 of the damage the tree does to your car, and the insurance company pays the rest. It also means you are paying a premium to cover $400 of loss you can handle (the difference between a $100 and a $500 deductible). The premiums associated with these small losses are very high. Thus, increasing your deductibles as high as possible is the best way to lower your insurance costs.
Here’s why. When the insurance company sets premiums, they first calculate the statistical probability of a loss. There are lots of $100 losses, not so many $10,000 losses. They’ve got to collect enough money from everyone to cover the claims. Then they must add enough to cover all the costs of handling a claim and making a profit. To them the paper work for a $100 claim is as much as it is for a $10,000 claim. Let’s say it costs the insurance company $100 to set up a file, handle the forms and paper work, communicate with you and the repair shop, inspect the damage, cut the check, etc., etc., etc. Administrative costs of $100 doubles the cost of a $100 claim but it only adds 1% to a $10,000 claim. The insurance company must recover those costs through much higher premiums on small losses. If you are willing to not insure against the small losses by accepting higher deductibles, the insurance company will reduce your premiums considerably.
I can see it all now. Some person out there will read this, run out and save a huge chunk by increasing deductibles then, promptly have an uncovered small loss. My name will be mud. All I can say is that properly and philosophically understanding insurance takes a special mentality. It is the same mentality that helps you understand that the weatherperson’s forecast was correct even as you watch your picnic float away in a 10% chance of rain.
Another place to look for over-insurance is your homeowner’s policy. Insure the house; don’t insure the value of the lot. The lot doesn’t burn down or get stolen. It does get damaged by earthquakes and mud slides, but most homeowner’s policies don’t cover movement of earth.
Of course, you want to resist the temptation to under insure, as well. This is a bigger problem in society than over insuring. And it does become a problem for society. Because insurance is expensive, many people don’t buy it. When you are hard-pressed financially, it is easy to believe all the bad things happen to other people. Then if you cause an accident and are uninsured, the other party suffers loss because of your driving and financial negligence. If you do not buy health insurance and then your child gets ill, society pays the cost to treat him. If your home burns and you can not afford to rebuild, the neighborhood is left with a blight.
Here we bump into one of those dilemmas of insurance and life. Those who can least afford to pay for insurance are the ones who need it the most. Bill Gates probably doesn’t need to insure his car against a hurricane blowing it away. He can afford a whole new car with no sweat. A struggling young couple finishing up graduate school with no money and a new baby may be devastated by a flat tire. In fact, the scenario gets worse. Bill Gates can afford to have his car in a hurricane-proof garage. The graduate students are driving around on bald, puncture- prone tires. The truth is a lot more of us feel closer to the graduate students economically than to Bill Gates. But it is a very bad idea to cut expenses by under insuring. It is bad for us and, as illustrated above, it is not fair to society.
One example of insurance that I have seen graduate students and many others skimp on is non-required auto insurance. Nearly everywhere, the law requires car owners to carry liability insurance. This simply means that if you cause the accident and are liable for the damage caused to the other driver, your insurance company will pay the other driver.
The law does not require you to insure your own car. Then if you cause an accident, the other driver is covered but your car is not. You don’t even need to be in an accident. A rock might go through your windshield, the kids may dent the door with a bat, or your rear end might be rearranged by someone who is not obeying the law-not obeying the law by tailgating and not obeying the law by failing to carry liability insurance to pay for the damage just inflicted on your car.
All of these possible losses on your car are separate lines of insurance usually bundled together in one premium. Each of them adds to the premium you pay. The question is how much loss can you afford to take? If you can not afford to lose your car in a rear end collision with an uninsured driver, you had better exchange that risk by paying a premium for uninsured driver protection.
All of which brings us to the complex questions of “What insurance do I need?” and “Where will I get the best deal?” I will touch on in these subjects in the next article. The final observation to make here is that most of us prefer certainty to uncertainty in important matters of life. Too much uncertainty leads to anxiety, frustration, and tension. But life is full of uncertainty, some of which is related to unexpected losses. Insurance can help reduce those uncertain losses. Insurance does not actually eliminate the loss. Instead it exchanges a certain loss for an uncertain one.
I think I am pretty much like everyone else. I hate paying insurance premiums. However, every time I needed the insurance company to pay for a loss, I was certainly happy I had added insurance payments to my bills.
2001 Meridian Magazine. All Rights Reserved.
