Insurance Solves Something No Advisor Can
Read the example above. The way to avoid a possible expense of the 1 unit? Insurance. People wrongly think about what insurance is.
“I paid all this money into it, didn’t get anything from it.”
Very commonly heard. And wrong. If that is actually what you expected, then you were looking for a coupon or a voucher. Insurance is an option, with an extra twist, which I have never seen described in the following way.
Insurance is the singular instrument to hedge against correlation (“Murphy’s Law”) risk. This is ignored when risky assets are straight higher, when we are at full employment (or so we are told). Look at the bullet points: let’s say the unexpected expense was 5 units, and not 1 unit. Now, you are at 87 units, not 91. And from there, you have to budget for the future, because the image above is always the case.
By the way, the most likely event to create an unexpected, 5 unit expense? Health situation. Health insurance is the (almost) singular hedge that completely ignores the price of risky financial assets. This feature should be understood as part of the premium that you pay. So, the idea that “I paid all this money into it…” is 100%, you have a hedge against what you are seeing, what someone is experiencing, right now.
When people say “I will pay out of my abundant assets,” that entirely presumes that you can liquidate risky assets at the optimal price, or that you have cash to pay. Even then, long-running health expense can erode that cash cushion, entirely.
Now, you understand why you don’t get to explain your financial situation to me, without first providing a full download of your health situation (are you Mr Perfect or Jabba the Hutt), and how you are planning for this.
If your portfolio and tax strategy incorporates health insurance, this option and the hedge against Murphy’s Law, this option could cost as low as $0. Thus, you might be able to understand my ranting and comments in every location that would humor me (thank you to the many that have). It’s worth the trouble to understand.
So it’s more than worrisome when I see that stock jockeys proudly proclaim: “I don’t understand and don’t want to deal with health insurance, I am optimizing your household net worth under a large number of financial scenarios.”