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Larceny and Road Kill: Self-Insuring Revisited

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It’s only human to form opinions based on experience. But reality often conspires to modify our views. When things don’t go as expected, I find it’s best to study what went wrong, refine your thinking, and keep moving ahead. I recently re-learned that lesson.…

We just completed a 6-week, 5,000-mile road trip from the Southeast to New England, out to Wyoming and Yellowstone National Park, down through Colorado into the Four Corners area of the Southwest, and finally back home again. We visited most of our family, and many friends, along the way. We hiked, climbed, and mountain biked, and discovered for ourselves more amazing known and unknown corners of this beautiful country.

It was a great experience. We loved the freedom and simplicity of life on the road, but we also missed aspects of home. Routine life chores such as cooking and cleaning are more work in our small RV. Without my full complement of computer gear, I couldn’t be as productive on my blog. And though we spent many blissful nights with cool mountain breezes blowing in our windows, we also spent a few rough ones at blistering hot Wal-Mart’s or truck stops in the lowlands as well.

Beyond those minor annoyances, life doesn’t stop happening on a dream vacation. Two incidents, one at the start of the trip, one later, were serious and frightening blows, with significant financial implications.…

An Early Morning Phone Call

It was our last morning visiting family in Washington, DC. We had been out late the night before, and weren’t able to take our customary parking spot in front of the stately old co-op building, so had parked around back. I thought nothing of it. It was one of the best neighborhoods in town, and the grounds were patrolled 24/7.

At 6:30 am the phone rang. I awoke with a start. Mr. Kirkpatrick? Yes. Building security. Did you take your bikes out for a ride this morning? (Was he kidding? I could barely walk this time of day!) No.

Then I’m sorry to inform you they’ve been stolen — it looks like the locks were cut. The voice on the other end of the line, the security chief, was apologetic.

My first concern was that somebody had broken into our van, our home on the road, and pilfered our other belongings, a potentially devastating blow. Was there any other damage, I asked? None.

I was relieved, and a bit impressed that the security guys had noticed the theft so soon, even if they hadn’t prevented it. Only later — it took several days really — did it sink in that our beloved mountain bikes were gone for good. They had been our primary form of recreation for more than 6 years. We had bought them back when our son was still a rambunctious teenager, and they had introduced a kind of magic into our family, channeling that youthful angst while infusing us, the older generation, with new energy for outdoor adventures. They were exquisitely crafted machines, full of memories, and they were expensive — worth more than $6,000 in total. (We’re frugal in most areas, but not in our outdoor sports.) It was our biggest property loss ever, and it hurt, personally, and financially.

Insurance

After the police left, and the initial shock wore off, I called our insurance companies. It’s been 20+ years since I’ve had a significant insurance claim, and never one of this magnitude. I didn’t know what to expect. Progressive, which covers our small RV, was friendly and professional. But after a lengthy question and answer session, and some additional research, the rep informed me that there was no coverage for personal property on our vehicle.

Next I called USAA, where we’ve had our homeowner’s policy forever. I’ve appreciated their highly efficient banking services for years. And I was no less impressed by their insurance claim operations. They too were friendly and professional. USAA had excellent systems in place to collect the specifications on our bikes, as I gathered them over several days. And the replacement cost calculated by their specialists for our bicycles was within a few dollars of what I had figured.

(Unfortunately, because of our very high deductible, the reimbursement was for a fraction of the loss. But the money was deposited electronically in our checking account less than two weeks after the incident, and that took some of the sting out.)

As we rolled up the East Coast after the theft I thought with irony how I had recently posted on the virtues of self-insuring. And now I was being forced to live the downside of that proposition. Sure, self-insuring is statistically inclined to turn a profit, if you can make good on your own losses. And we were having to do that now, thanks to our high deductible.

How did it feel? Was I going to eat my words? There were thousands of miles of highway ahead — a good opportunity to ponder that question.…

Late Night Driving

Three weeks passed. We were accepting the loss of our bikes, and, after much research and test riding, were close to a replacement decision. We left Jackson in the early morning and made the long trek down the western edge of Wyoming, then Colorado, over hair-raising Douglas Pass, and into Grand Junction for dinner.

We decided to push on for a few more hours after dark. It would be wonderful to wake up in spectacular Crested Butte on Independence Day. We made it to Montrose about 9 pm, and pressed on towards Gunnison. Soon enough I realized that the road wasn’t the easy driving the map or my memory had pictured. There were two substantial mountain passes ahead of us, with twisty, narrow road in between. It was tense, exhausting driving at the end of a long day.

I was going about 10 mph under the limit, when, suddenly, two deer appeared in the headlights. The closer one was moving into our lane. I muttered "watch out," and swerved slightly, mindful of the narrow shoulder, impending drop-off, and unforgiving suspension of our 10,000 pound van. The deer paused, and I breathed a small sigh of relief: it wouldn’t be a head-on collision. Then at the last instant, it moved forward into the light again. Too late. There was a sad thud, and we moved on into the night on the busy narrow road, unable to stop safely to assess the damage.

A half-hour later in Gunnison the flashing red light in the rear-view mirror confirmed my suspicion that we’d sustained some non-trivial damage to the van’s front end. The policeman was cordial once he heard of our misfortune. He inspected the damage up front, and let us off with a perfunctory warning, given extenuating circumstances. When we reached our campsite, I grabbed a flashlight and inspected the damage myself: bent fender, two cracked lights, smashed infrastructure. I turned to my wife and said "that’s $400-$500." I knew it had been much worse for the deer.

We avoided night driving until we reached Flagstaff a week later, where the local Ford dealer’s collision center took good care of us, ordering parts as soon as we reached town, and fixing the damage in a couple of hours two mornings later. We might have saved $100 by choosing an independent shop and cheaper parts. But, on the road, far from home, in the middle of a vacation, I wasn’t interested in searching for bargains or vetting auto mechanics. Paying the dealer’s premium seemed to make sense in this case. I didn’t even bother calling the insurance company this time around. I knew the repair would be well under our high deductible, and though I didn’t believe that hitting a deer at night ought to affect our policy rating, I didn’t care to take chances on a premium increase when we weren’t at fault.

Lessons Learned

So now we are home, reflecting on a memorable vacation filled with new sights and great times with family and friends, but also some sadness and loss, and thousands of dollars in unplanned expenses. How does it all leave me feeling, given my views on self-insuring, not to mention a retirement budget predicated on a relatively fixed income, and expenses?

First, in all matters, there is a silver lining. We did learn some valuable lessons that can reduce or eliminate similar losses in the future:

  1. Barring emergencies, we won’t be driving 2-lane mountain roads in deer country at night anymore. It simply isn’t worth the risk to ourselves, or the animals. What’s the rush? We’ll get up earlier in the morning, and make camp earlier in the evening. It’s a lesson that my parents and grandparents learned long ago, and now, in my 50’s, I’ve finally learned it.
  2. We also now understand that bicycles are in grave danger of theft in any major metropolitan area, no matter how nice the neighborhood. Cable locks can be cut quickly with standard hand tools, offering no protection against premeditated thievery. Solid-metal U locks buy you a few minutes, but can still be cut with power tools, or broken with car jacks. The only certain protection is to bring your bikes inside.

Self-Insuring

But do these experiences change my opinion that self-insuring is preferred whenever you can afford it? Not really. The math remains the same: insurance companies turn a profit on their business, on average. And you can too, by assuming the risk, when you are able. But you must be able to handle that risk, financially and emotionally….

As long as it doesn’t happen too often, a few thousand dollars in unplanned expenses is mostly a footnote to our financial plan. Variables such as market returns, inflation, and life expectancy are far more important. But, emotionally, loss can still be hard. Especially experiencing two losses in a row. And there’s no doubt that experiencing another one in quick succession would take the shine off of self-insuring.

Deductibles vs. Premiums

So, in the aftermath, I reviewed the deductibles and premiums on our policies. The latest quotes challenged my assumptions. In the past I’ve simply picked the highest deductibles without much thought, but that may not be the best value in all cases.

I’ve seen that higher deductibles for health insurance can result in dramatically lower premiums, but that’s not true for all kinds of insurance. On our homeowner’s policy, it turns out the difference in premium between a $5,000 and $1,000 deductible is only about 25%, or less than $200/year. Having felt the sting of a major loss, that looks like a reasonable expense to me right now.

Bottom line: don’t assume that very high deductibles will save a lot in premiums, but rather get a full range of quotes. Record them in a table or graph. Then, take your time, and make the optimal choice.

Despite it all, we had a great vacation. I experienced a lot, grieved a bit, celebrated a bit, and learned some vital lessons. Now I’m happy to be home, with a bit more wisdom to share.

How about you? Have real-life losses caused you to fine-tune your approach to insurance? Any other lessons learned from the road?

Comments

  1. Hate to hear about the bicycle theft. That's a violation of the psyche as well as the wallet. I tend to go the high-deductible route, and I dropped the collision coverage on our 10-year-old-plus autos some time back. As with other cost-cutting measures, however, I think a key point is what you do with the nominal savings. If you're investing the dollars that would otherwise have gone to heftier premiums, then you'll probably come out much better in the long run, even though it's hard to stomach those sudden out of pocket reimbursements for losses. In that sense, maybe you also have to look at "self insuring" as, in reality, "prepaying" yourself for losses that have not yet occurred.

  2. Darrow Kirkpatrick says:

    Thanks for the comments and insights Chris. Agreed!