Buy insurance only for losses you can't bear yourself, and cover losses you can bear with your emergency fund
- High value
- Evidence C
- Saves money
- Free
- Takes minutes
- No willpower
In plain words
The premiums you pay do not all come back as payouts, because part goes to the insurer's costs and profit. So what's worth buying is cover for losses that rarely happen and that your family couldn't pay for if they did, such as a serious illness, injuring someone while driving, or the death of the family's earner. Small losses your savings can bear are left to the emergency fund.
- Cost
-
Free. What to do is list the big losses your family could face and see which ones your savings can't bear. It takes half an hour once.
- What you get
-
Of the premiums an insurer collects, only a part is paid out as claims. The rest pays for sales and operating costs, and the company's profit. The regulator requires companies selling individual short-term health insurance to publish a "comprehensive loss ratio" on their website every six months. It is roughly the share of premiums paid out as claims, and to see how much a company pays out you can check its website. So for any one loss, buying insurance loses a little money on average over the long run. What you get in return is turning a single large expense that could crush a family into a small payment each year. The smaller the loss and the more easily you can pay it, the worse this trade is. By this standard, a few kinds already covered in this book are worth buying. For one-year medical insurance, see §7.20 (one-year medical insurance). For people with a car, see §5.26 (third-party liability). For people going abroad, see §21.4 (overseas medical care). If someone at home lives on your income, see §5.40 (term life insurance) (national, in effect since 2021)
- Notes
-
Rated C because there is no official figure to work out which insurance is worth buying, and what is given here is a way of deciding. Screen-breakage insurance, flight-delay insurance and the like cover losses of a few hundred CNY that you can pay yourself, so by this standard you can skip them. Critical illness insurance pays for the income lost in the years you can't work because of illness, and people whose savings can carry a year or two of not working may consider not buying it. Basic medical insurance is social insurance and is not chosen by this method; you still have to pay into it, see §7.9 (resident medical insurance). For what covers small losses, see §5.27 (emergency fund). The beneficiaries of this item are you and your family.
- Evidence grade
- C : The author's experience or common practice, without direct literature.
- Sources
-
- 中国银保监会办公厅 (2021). 关于规范短期健康保险业务有关问题的通知（银保监办发〔2021〕7 号，综合赔付率按半年在公司官网披露）. https://www.gov.cn/zhengce/zhengceku/2021-01/12/content_5579193.htm
Mentioned in
- Don't skip saving just because “people can die at any time, so it's happier to spend the money early”; about 90% of 30-year-olds live to 60
- Before a serious illness, add a one-year medical insurance or critical illness insurance policy on top of basic medical insurance, and look for the words “guaranteed renewable”
Translated from the Chinese original. Original book, section 5, tip 39. This section is about money and spending. It is general information, not financial or investment advice. Content may be out of date and rules differ by place. When you actually deal with an agency, a doctor or a court, follow what local officials, doctors and lawyers tell you. Disclaimer