Insurance can help you avoid a financial crisis if you are injured, involved in a car accident or your property is damaged. But the costs of insurance can be high, and you're at the mercy of the insurance company when it comes to determining how much compensation you'll receive for your loss. Depending on your financial situation and the laws in your state, alternatives to traditional insurance might work better for you.
In 2014, health insurance will become mandatory under federal law; if you don't purchase it, you'll have to pay a fine. If you want to forgo health insurance, you'll need to ensure that the fine is less than the cost of health insurance and come up with another strategy for covering health care costs. Some doctors offer discounted services to patients who pay in cash, for example. If you're young and reasonably healthy, you may be able to get away with keeping a small rainy day fund, but if you have chronic health conditions or take prescription medications, you'll likely have to have significant savings to cover medical expenses. If your health insurance premiums would be significantly higher than the fine for not being insured, putting money aside each month for a health emergency could cost less than insurance -- but only if you don't experience a serious health crisis.
In some states, drivers do not have to purchase car insurance if they make an upfront deposit or pay for a surety bond. In Washington, for example, you can make a single payment of $60,000 to the Washington Department of Motor Vehicles instead of getting insurance, while in California you can make a single payment of $30,000. Auto insurance is mandatory in all 50 states unless you make such a payment, and only a few states offer this option. Such a payment is not affordable for most people, but if you've been turned down for auto insurance or have another reason for not wanting to pay for it, it's your only legal option.
Exams to qualify for life insurance can be invasive, and the process can take several months. If you'd prefer not to deal with the hassle but you have a family you want to protect if you die, an annuity is an alternative. With an annuity, you make one deposit or regular deposits into an account, and the money grows based upon interest rates. When the annuity matures, it pays out a fixed amount on a regular schedule. This option ensures that your family members receive regular, reliable payments after your death. Other investments -- including bonds, individual retirement accounts and money market accounts -- can also build your money and serve many of the same functions as a savings account. However, investment carries some risk, and you could lose everything you invest.
Your mortgage agreement might require that you purchase homeowners insurance, but if you own your house free and clear, you might not have to buy it. Because damage to your home can be catastrophic and include the loss of all of your possessions and the structure itself, however, purchasing insurance is generally a wise decision. One alternative is to insure the contents of your house rather than the house itself if you're concerned that the cost of homeowners insurance exceeds the value of an old or inexpensive house.
Depending on your career and life circumstances, you might need to purchase a wide variety of insurance types, such as liability insurance for your business or long-term care insurance to ensure you have resources in your old age. There are few good alternatives to these types of insurance, aside from simply saving money. Because a costly lawsuit can quickly run into the hundreds of thousands of dollars and long-term care can require medical care, transportation and a place to live, even the best savings account may not be enough to cover these costs.
- U.S. Department of the Treasury: Health Savings Accounts
- Washington State Department of Licensing: Mandatory Insurance
- DMV.org: Alternatives to Auto Insurance
- Bankrate: Alternatives to Long-Term Care Insurance
- Los Angeles Times: Many Doctors, Hospitals Offer Cash Discount for Medical Bills
- Dave Ramsey. "The Total Money Makeover: A Proven Plan for Financial Fitness," Page 73. Thomas Nelson, 2003.
- LIMRA. "2018 Insurance Barometer Study," Page 7. Accessed Aug. 22, 2020.
- American Journal of Public Health. "Medical Bankruptcy: Still Common Despite the Affordable Care Act." Accessed Aug. 22, 2020.
- Kaiser Family Foundation. "Hospital Adjusted Expenses per Inpatient Day." Accessed Aug. 22, 2020.
- Kaiser Family Foundation. "2019 Employer Health Benefits Survey." Accessed Aug. 22, 2020.
- Social Security Administration. "The Faces and Facts of Disability/Facts." Accessed Aug. 22, 2020.
- Council for Disability Awareness. "2012 Long Term Disability Claims Review," Page 3. Accessed Aug. 22, 2020.
- MyFloridaCFO. "Disability." Accessed Aug. 22, 2020.
- Guardian. "The Cost of Long Term Disability Insurance." Accessed Aug. 22, 2020.
- National Highway Traffic Safety Administration. "Police-Reported Motor Vehicle Traffic Crashes in 2018," Page 1. Accessed Aug. 22, 2020.
- National Safety Council. "Motor Vehicle Deaths Estimated to Have Dropped 2% in 2019." Accessed Aug. 22, 2020.
- CDC. "10 Leading Causes of Death, United States: 2018, All Races, Both Sexes," "2018, United States, Unintentional Injuries, Ages 5–9, All Races, Both Sexes," "2018, United States, Unintentional Injuries, Ages 10–14, All Races, Both Sexes," and "2018, United States, Unintentional Injuries, Ages 15–24, All Races, Both Sexes." Accessed Aug. 22, 2020.
- National Highway Traffic Safety Administration. "The Economic and Societal Impact Of Motor Vehicle Crashes, 2010 (Revised)," Page i. Accessed Aug. 22, 2020.
Van Thompson is an attorney and writer. A former martial arts instructor, he holds bachelor's degrees in music and computer science from Westchester University, and a juris doctor from Georgia State University. He is the recipient of numerous writing awards, including a 2009 CALI Legal Writing Award.