Insurance: Determining What Risks You Will or Won’t Take

The rationale for buying insurance, in general, is to protect ourselves from an unexpected event with the potential for saddling us with a catastrophic financial burden.  Conversely, there are certain categories of risks with a likely much smaller financial impact which do not generally justify the purchase of a policy with which to protect ourselves.

I paid 6,000 nis for a used car a couple of years ago. (The wife drives the expensive car.)  I decided not to buy a “mekif” (comprehensive) insurance policy, as the premiums over 2-3 years would cost more than the car is worth.  I am willing to risk a total loss or theft of 6,000 nis (a low-percentage risk) in exchange for a 100% chance of not having to pay premiums. Similarly, I see no value in insuring household appliances such as a refrigerator or washing machine for hundreds of shekels a year (beyond the warranty period), because I calculate the risk of a breakdown of a new appliance as small.  These two examples illustrate cases where I prefer to expose myself to a small risk in order to save money.

But when it comes to much “riskier” risks, insurance definitely is required. The theft of a car worth 80,000 nis is a risk I am not willing to assume, so I will pay several thousand shekels each year to protect myself. My health fund’s basic services do not include certain procedures and medications which I have decided are vital to mine and my family’s health, so I will buy the add-ons which my fund offers, and also buy supplemental private health insurance as I may require. The chances that I and most of the population will require “siudi” (long term care) services at some point in life are far greater than 50%, so I pay each month for such coverage.  The principle is simple: if the risk event has the potential to cost me a great amount of money, either as a lump sum or as painful monthly outlays, I will buy insurance to protect myself against that risk.

Each family, based on its makeup, its financial situation and how it views in general the need for insurance, will determine for itself which risks it is willing to take and which not. But the discussion must take place within each family unit, so that decisions are based on careful thought and understanding of the risks involved.

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About the Author
"Heaven never decreed that you must live forever in debt." David made Aliyah from the U.S. in 1983. He worked in education and hi-tech prior to establishing BONUS Family Budget Counseling. He counsels families and groups on proper money management and Israeli consumerism.