Self-Insure the Small Stuff

Pay for the small stuff yourself; save your premiums for the disasters. (Self-insurance, in one line.)

Every premium you pay includes the cost of running the insurer plus a margin of profit. Across many small claims, that loading means you will, on average, pay more in premiums than you ever receive back. For losses you could comfortably absorb, that is a poor trade.

"Self-insuring" sounds grand but simply means keeping a cash buffer and letting small shocks come out of it. A flat tyre, a broken appliance, a modest medical bill — these belong to your emergency fund, not a claims form.

The same logic favours a higher excess — the first slice of any claim that you agree to pay yourself. Carrying that slice lowers your premium and keeps the insurer for what it is genuinely good at: the losses too large to self-fund.

The dividing line moves with your wealth. As your buffer grows, more risks become "small stuff" you can carry, and your insurance can shrink back to the true catastrophes.

Illustrative example: carry, share, or transfer

The ladder sorts losses by size. Small losses come straight from your buffer. Medium losses are shared — a higher excess trims the premium. Only catastrophic losses are worth transferring in full to the insurer, which is what cover is built for.