Insurance You Don't Need

A while ago I read an article on Yahoo Philippines about saving money by avoiding some unnecessary, though not necessarily frivolous expenses.

I browsed through the comments and was surprised to see that a mini-argument was brewing about the necessity of life insurance.

The article was saying you could save money by not buying insurance you don't really need. A couple of commenters were insisting that insurance is always a necessity.

So that got me thinking, are there really insurance you don't need? And is life insurance always necessary?

First, the easy part...

The article mentioned that car insurance was for car owners only. Which obviously makes sense. So right away there's at least certain types of insurance that you don't need.

Extending that reasoning, home owners would need home insurance right? And you can get something like Php1Million coverage for Php2,000 for one year. So it makes sense to get one, specially if you don't have money lying around to repair damages or replace your stuff.

But what if you're renting? Well, you won't need home insurance. Your landlord is supposed to get the house/apartment/condo insured.

However, you might need renters insurance. It won't cover the structure (house/apartment/condo unit) but just your stuff. It's also supposed to be cheaper than home insurance, though I guess that depends on how much your stuff amounts too.

And then there's medical insurance. If you get ill, it gives you money to pay for medical bills. It's obviously a  handy thing - and especially so for cash-burning illnesses (which is essentially anything that requires an operation).

However, if you think about it, what you would really need is something like an HMO or health card. Aside from also paying you money after the fact, it also pays for things to help prevent you from getting ill in the first place (like consultations, annual check-ups, and maybe even medicine reimbursements).

So it seems there's no clear-cut "unnecessary" insurance. It really depends on your situation and what you really need. Which brings us to the contentious part - life insurance.

On one hand, it seems like an easy decision. You need life insurance. There's not much to really think about, assuming you can afford it.

But then on one hand people argue everyone should be insured. It sounds about right, until you hear them insist even young, single, people with no dependents need it (because they say it's cheaper that way). In fact, some will say even a child needs to be insured.

Personally I think that's a bit extreme. It used to be that you got insurance to replace what was lost. You won't have the money to replace right away your house or car, so you get insurance.

In the same way, you want to protect your family's income. If you are the sole or co-breadwinner, you get life insurance so the finances don't have to suffer if you pass away. Important stuff like food, education, etc. will still be paid for a time until everyone can adjust to the new reality.

But - speaking bluntly - if you're single and no one depends on you, the most you'll need is to pay for your own funeral. You could get life insurance for that. Or, if it's a simple funeral and you have enough money stashed away, your next of kin (usually the parents in this case) can shoulder the expense as your assets should pass to them.

Someone may bring up estate taxes, but there's a standard deduction of Php1million - which is usually more than enough. Aside from that the hospital and medical bills and even the funeral expenses are also deductible from the estate tax. Meaning if the young, single guy had Php1.5M in assets, and the funeral and hospital costs amounted to 500K (or more), then estate tax should still be zero.

Going back to the topic: it makes sense to get life insurance. However, if you're cash flow is not so great it pays to be wise where you spend your money.

So if your employer gives you life insurance as a benefit, and you have no dependents and don't need a larger coverage, then you may not need to buy a policy just yet.


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