Is it cheaper to use car Insurance or pay out of pocket?
"There's not a single answer here, as the premium you pay for car insurance depends on multiple factors, including (but not limited to): All these factors contribute to the likelihood of getting into an accident, and the expected damage from an accident.  So just having an accident and making a claim will likely raise your premium (all else being equal), but whether or not it will be cheaper in the long run depends (obviously) on how much your premium goes up, which cannot determined without all of the facts.  Your agent could tell you how much it would go up, but even making such an inquiry would likely be noted on your insurance record, and may cause your premium to go up (although probably not by as much). However, the point of insurance is to reduce the out-of-pocket expenses from future accidents, so the question to ask is: How likely am I to have another accident, and if I do, can I pay cash for it or will I need to offset some cost with an insurance claim.  Do you risk making a claim and having your rates go up by more than $700 over the next 3-4 years (the rough time it takes for a ""surcharge"" to expire)?  Or do you just pay for the repair out-of-pocket and keep your premiums lower?"
The odds could very well be in your favor, even when the insurance company expects profit. What matters to you is not the expected amount of money you'll have, but the expected amount of utility you'll get from it: getting enough money to buy food to eat is much more important than getting enough money to be able to buy that fiction book too. The more money you have, the less a dollar is worth to you: consequently, if you have enough money, it's worth spending some to prevent yourself from getting into a situation where you don't have enough money. "I'm going to take a very crude view of this: Suppose that you have an event that would cost $100,000 if it occurred. If there's a 10% chance that it'll happen to you and the insurance costs less than $10,000, you'll make a profit ""on average."" This is, of course, assuming that you could afford a $100,000 loss. If you can't, the actual loss could be much higher (or different). For example, if you couldn't afford surgery because you didn't have health insurance, it could be a lot more ""costly"" in a way that could be difficult to compare to the $100,000. Obviously, this is a very simplistic view of things. For example, making more than you paid on the premium typically isn't the only reason you'd buy insurance (even if you're high net worth). Just wanted to throw this out there for what it's worth though." "There are cases where it makes sense to insure something, even if you can bear its loss.  Insurance is a tool to control risk.  One reason you might want to control risk is indeed if you cannot afford to bear it's loss.  However, there are other reasons you might wish to insure something when you look at your life in totality. Let's say you have $100 to work with, and you have an item A that costs $30. Perhaps you really need A in your life, but its clear here that you can afford to replace it, so maybe you don't insure it.  Then you get item B, which also costs $30, and item C which costs $30.  We can see that you can cover all three of these (total value $90), so one might argue that you don't need to insure it. Now let's add item D onto the plate, also at a cost of $30.  Now you're in an interesting position, with 4 items you depend on, A B C and D, which have a sum total replacement cost of $120.  Now if all of these break or are stolen, you no longer have the funds to replace them.  Of course, what are the odds that all of them break at the same time?  You may be able to do the math to determine the probability of going broke, and use that to determine whether you want to insure the item or not. Now consider that you will have to make a similar mathematical analysis for every additional purchase you make.  You will also have items which you can ""bear to lose"" but you really don't want to.  These can add a large amount of effort to every decision you make.  It may be worth getting insurance in such a case.  One could think of the purchase in two parts.  There is the part that accounts for the statistical expectation of loss, and the other is the insurance company's profits.  The profits could be thought of as paying the insurance company for a service which makes it easier for you to think through complicated decisions by removing risk." "But you aren't driving between your two jobs, you're driving for your job. The better analogy would be ""If I didn't buy commercial insurance, but was hiring myself out to do deliveried then my personal insurance better cover me if I hit someone between deliveries"" It doesn't work that way. There is a reason commercial insurance costs a lot more - when your job is to drive, your risk profile increases significantly. There are specific clauses in personal insurance that they aren't going to cover you if something happens while you are using your car for commercial purposes." "In terms of how to make your decision, here are some considerations. Comprehensive insurance often covers other perils besides collision, including fire, theft, hail or other weather damage, additional liability coverage etc. It may be worth looking at your specific policy to see what is covered. No matter what you do, make sure you have some form of personal liability coverage in case you are sued (doesn't necessarily need to be through the auto policy). While it can make financial sense to drop comprehensive coverage once you can afford to self-insure against collision, this will only be the case if you are certain that you can set aside dedicated savings that you would only need to dip in to in the case of a collision or other major loss. For example, if you only have $5-$10,000 in the bank, and you happen to lose your job, and then the next month you happen to be hit in an accident and the car is totaled, could you afford to replace the car out of pocket? I would recommend looking at dropping comprehensive insurance as similar to a ""DNR"" (do not resuscitate) order for your car, i.e. under no circumstances would you choose repair the car were it totaled or damaged. For example, if your car's exterior were badly damaged in a hail storm (but still ran fine), would you pay $500 or more to repair it, or would you simply get a new car? Ultimately, this is going to be a judgement call based on how much financial risk you want to take on. Personally, I would continue to pay the extra $300 per year for now in order to insure a $6-8,000 asset (5% of the asset value) However, in the next few years the resale value of your car will continue to decline. If in a few years the car were worth $1,500, I would probably not pay the same $300 a year (or 20% of the asset's value). When you should make that choice depends on how many more years of service you expect to get from the car, which is a very localized question. Hope that helps!" "Is there any way out from letting the money disappear into a black hole? But that is the whole point of insurance; the ""black hole"" = the insurance company.  That's how they stay in business.  You are giving up your money to them, but you get something in return:  a guarantee of financial rescue if something happens to you medically.  Considering how much health care costs can cost in the U.S., this is not insubstantial. To the degree that you might be able to divert some of that money out of the ""black hole"" and back into your pocket, or a charity, would be equivalent to reducing your premium costs.  There are few ways to do that, but none too significantly.  E.g., sometimes plans have health programs that customers can participate in and get a small discount, etc.  But for the most part, you are stuck.  Welcome to the U.S. Health Care System. One tiny tip:  see if your school offers a free flu shot this fall; many do, it seems, so there is $15 saved.  The school's human resources office would probably know about this." If you repair your phone, when your current balance is paid off, could you get the same coverage for less money? Or would your monthly payment remain the same regardless? That would be the easiest comparison to make.  ie: Pay an extra $49 to have the phone replaced [ie: the cost of using the insurance program for $149, vs the cost of buying out your plan for $100], get a slightly worse phone instead of upgrading, but save $15 / month for the next 2 years. This would pay off economically within 3-4 months, but the phone would be older (not sure if you care about that). At minimum, put down the sale price less what insurance would pay if you got in an accident when driving home, OR purchase gap insurance. This auto loan calculator is fun to play around with.  The larger the down payment, the smaller your monthly payments will be.  Don't forget to budget insurance and gas!  Insurance on a car you make payments on is more expensive. http://www.bankrate.com/calculators/auto/auto-loan-calculator.aspx A buddy of mine had a string of bad luck and totaled his car a few months after the date of purchase.  He learned what it meant to be 'underwater', insurance paid him a few thousand less than the value of his loan.  What's worse than having no car, having no car and a loan! I believe the insurance you are talking about is the type of insurance that makes your payment in the event you can't pay due to some specific reasons. These types of insurance are profit centers for the credit card companies and are generally not worth it for the consumer.    You are better off picking the best credit card that meets your needs and then finding your insurance needs separately.    Typically, the best credit card payment insurance plan is to not carry a balance and have a reasonable emergency fund.   Putting the money that would have gone to insurance towards those two goals will likely help you more than paying for the credit card insurance policy. Ignoring that liability car insurance is usually a state mandated requirement and that all banks require full coverage, there are quite a few reasons to buy it. No matter how much money you have, you can't really guarantee that you can recover financially from an accident.  Yes, you can buy a new car.  But what happens if you are sued because the other driver died or is now in a long term coma?  The legal costs alone would financially bury most people. It's even worse if you are rich.  Let's say someone rear ended you.  If you had no insurance (again ignoring the legality here), you can bet their attorney would take a look at your considerable financial assets and do whatever it took to get as much of that as possible.  The legal fees alone of defending yourself at trial would likely far outstrip everything else. And that's just one little situation. "The two questions inherent in any decision to purchase an insurance plan is, ""how likely am I to need it?"", and ""what's the worst case scenario if I don't have it?"". The actuary that works for the insurance company is asking these same questions from the other end (with the second question thus being ""what would we be expected to have to pay out for a claim""), using a lot of data about you and people like you to arrive at an answer. It really boils down to little more than a bet between you and the insurance company, and like any casino, the insurer has a house edge. The question is whether you think you'll beat that edge; if you're more likely than the insurer thinks you are to have to file a claim, then additional insurance is a good bet. So, the reasons you might decide against getting umbrella insurance include: Your everyday liability is low - Most people don't live in an environment where the ""normal"" insurance they carry won't pay for their occasional mistakes or acts of God. The scariest one for most is a car accident, but when you think of all the mistakes that have to be made by both sides in order for you to burn through the average policy's liability limits and still be ruined for life, you start feeling better. For instance, in Texas, minimum insurance coverage levels are 50/100/50; assuming neither party is hurt but the car is a total loss, your insurer will pay the fair market value of the car up to $50,000. That's a really nice car, to have a curbside value of 50 grand; remember that most cars take an initial hit of up to 25% of their sticker value and a first year depreciation of up to 50%. That 50 grand would cover an $80k Porsche 911 or top-end Lexus ES, and the owner of that car, in the U.S. at least, cannot sue to recover replacement value; his damages are only the fair market value of the car (plus medical, lost wages, etc, which are covered under your two personal injury liability buckets). If that's a problem, it's the other guy's job to buy his own supplemental insurance, such as gap insurance which covers the remaining payoff balance of a loan or lease above total loss value. Beyond that level, up into the supercars like the Bentleys, Ferraris, A-Ms, Rollses, Bugattis etc, the drivers of these cars know full well that they will never get the blue book value of the car from you or your insurer, and take steps to protect their investment. The guys who sell these cars also know this, and so they don't sell these cars outright; they require buyers to sign ""ownership contracts"", and one of the stipulations of such a contract is that the buyer must maintain a gold-plated insurance policy on the car. That's usually not the only stipulation; The total yearly cost to own a Bugatti Veyron, according to some estimates, is around $300,000, of which insurance is only 10%; the other 90% is obligatory routine maintenance including a $50,000 tire replacement every 10,000 miles, obligatory yearly detailing at $10k, fuel costs (that's a 16.4-liter engine under that hood; the car requires high-octane and only gets 3 mpg city, 8 highway), and secure parking and storage (the moguls in Lower Manhattan who own one of these could expect to pay almost as much just for the parking space as for the car, with a monthly service contract payment to boot). You don't have a lot to lose - You can't get blood from a turnip. Bankruptcy laws typically prevent creditors from taking things you need to live or do your job, including your home, your car, wardrobe, etc. For someone just starting out, that may be all you have. It could still be bad for you, but comparing that to, say, a small business owner with a net worth in the millions who's found liable for a slip and fall in his store, there's a lot more to be lost in the latter case, and in a hurry. For the same reason, litigious people and their legal representation look for deep pockets who can pay big sums quickly instead of $100 a month for the rest of their life, and so very few lawyers will target you as an individual unless you're the only one to blame (rare) or their client insists on making it personal. Most of your liability is already covered, one way or the other - When something happens to someone else in your home, your homeowner's policy includes a personal liability rider. The first two ""buckets"" of state-mandated auto liability insurance are for personal injury liability; the third is for property (car/house/signpost/mailbox). Health insurance covers your own emergency care, no matter who sent you to the ER, and life and AD&D insurance covers your own death or permanent disability no matter who caused it (depending on who's offering it; sometimes the AD&D rider is for your employer's benefit and only applies on the job). 99 times out of 100, people just want to be made whole when it's another Average Joe on the other side who caused them harm, and that's what ""normal"" insurance is designed to cover. It's fashionable to go after big business for big money when they do wrong (and big business knows this and spends a lot of money insuring against it), but when it's another little guy on the short end of the stick, rabidly pursuing them for everything they're worth is frowned on by society, and the lawyer virtually always walks away with the lion's share, so this strategy is self-defeating for those who choose it; no money and no friends. Now, if you are the deep pockets that people look for when they get out of the hospital, then a PLP or other supplemental liability insurance is definitely in order. You now think (as you should) that you're more likely to be sued for more than your normal insurance will cover, and even if the insurance company thinks the same as you and will only offer a rather expensive policy, it becomes a rather easy decision of ""lose a little every month"" or ""lose it all at once""." "Insurance rates are based on statistics manipulated by experts in actuarial ""science"". Actuaries look at how many times different makes and models get into accidents or are targeted by thieves, and how expensive it is to repair them. Many auto and finance sites will publish lists of the best and worst insurance risks. Family style cars like minivans and family sedans fair well, while sports cars get more expensive insurance. New models will get the risk of similar models until there is statistical data on them. One other take away from this discussion is that inexpensive insurance usually coincides with cheap repair costs, lowering your total cost of operation for your vehicle." "I've lived this decision, and from my ""anecdata"": do #3 I have been car-free since 2011 in a large United States city.  I was one month into a new job on a rail line out in the suburbs, and facing a $3000 bill to pass state inspection (the brakes plus the emissions system).  I live downtown.  I use a combination of transit, a carshare service, and 1-2 day rentals from full service car rental businesses (who have desks at several downtown hotels walking distance from my house).  I have not had a car insurance policy since 2011; the carshare includes this and I pay $15 per day for SLI from full service rentals.   I routinely ask insurance salesmen to run a quote for a ""named non-owner"" policy, and would pull the trigger if the premium cost was $300/6 months, to replace the $15/day SLI.  It's always quoted higher.   In general, our trips have a marginal cost of $40-100.  Sure, this can be somewhat discouraging.  But we do it for shopping at a warehouse club, visiting parents and friends in the suburbs.  Not every weekend, but pretty close.   But with use of the various services ~1/weekend, it's come out to $2600 per year.  I was in at least $3200 per year operating the car and often more, so there is room for unexpected trips or the occasional taxi ride in cash flow, not to mention the capital cost: I ground the blue book value of the car from $19000 down to $3600 in 11 years.   Summary:  Pull the trigger, do it :D" Pay it off. If you do so, you have the liberty to drop or reduce a portion of your collision auto insurance coverage (keeping uninsured motorist). This could potentially save you a lot more than 20 bucks over the next six months. As a rule, purchasing fairly priced (minus a spread) insurance on items you can afford to replace is a bad idea. However, in addition to the points mentioned in the previous answers, one should note that many types of insurance are UNDERpriced because on average people do not make claims even though they are entitled to them.  If you purchase something moderately priced at Best Buy and get the extended warranty and it breaks down a year later, you will be unlikely to even remember that you purchased the insurance much less go through the trouble of making a claim.  More likely you will just go buy a replacement or whatever the latest and greatest iteration is.  It's like homeowner's insurance--an amazing number of things is covered but no one ever makes claims, so it is cheap.  If you are a person who remembers and utilizes warranties and insurance, there are many types of insurance that will save you money in expectation.   The other thing is that you know more about your own riskiness than the insurer does.  I had a girlfriend who bought super comprehensive insurance on her crappy old car.  I was quite stern with her about it but could not change her mind.  She totaled it a few months later.  They bought her a replacement.  She got in a more serious accident with that car and got yet another one in addition to payment of her medical care, which did not even go to her health care insurance.  Yes, her rates went up, but not fast enough to deal with how risky she was.  Another example: I used to carry an e-book reader around in my shirt pocket and read it any time I had a chance.  Cheap item and not that delicate, but since I had it with me all the time and used it constantly, it was a big risk for the store.  The extended warranty would have been a great idea. In short, avoid extended warranties and insurance on things you can afford to lose unless you know that you are high risk or are otherwise more likely than average to make a claim.