Should you insure against windscreen and flood damage?

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Renewing car insurance has become an routine for most car owners.  Many just pay the bill presented, rarely giving it much thought.  But if you pay some attention to some details, you might end up saving a couple of thousands Ringgit in the long run. For example, the premium for windscreen coverage. Do you really need to insure against windscreen damages?

The premium you pay for windscreen coverage is 15% of the cost required to replace your windscreen.  Let's say it costs RM2000.  Then, the premium required is RM300.  It doesn't look like a lot of money to pay for some peace of mind... Or does it?

Insurance companies are excellent with numbers.  After all, they make money by "hoping" bad things against which you insure do not happen.  Except they don't hope.  They calculate based on extensive statistics collected and analyzed over the years.  Insurance companies can predict your lifespan better than any fortune teller could.   Likewise, they "know" when windscreens break with uncanny accuracy.

The evidence that follows is purely anecdotal.  Some years ago when my car insurance was due, I was deeply curious about how the premium for windscreen coverage was determined, and whether it was really worth paying.  I dug up my old repair bills.  On average, I damaged my windshield once every 7 years. Divide 100 by 7 and you get 14.3. Each year, there is roughly a 15% chance I would break my windscreen. Now I know why insurance companies set the premium at 15%.

If, instead of paying for the premium, I invested the RM300 annually. Assuming 5% annual return, in 7 years, I would end up with RM2442, which is more than enough to cover my windscreen replacement. But what if my windscreen breaks now, not 7 years down the road? Well, I pay for the repair out of my own pocket. Painful, but I can afford it. I don't really need insurance for my windscreen. I make more money by investing. As a rule of thumb, only buy insurance for losses that you can't afford -- which brings us to the topic of insuring against flood damage.

If disaster were to strike and total my whole car, THAT is a loss I can't afford. To many people, flood damage feels so remote. Few want to shell out extra cash to cover flood damage. The premium for covering such perils is 0.2% of the insured value. For a RM50k car, that's RM100. There's virtually no way I can invest RM100 annually and get anywhere more than RM10k in 20 years. So, insuring against flood makes way more sense than windscreen damages.

Of course, you also need to take into consideration your travel pattern. For example, if you are your own boss, never need to get stuck in rush-hour traffic and have your own safe parking spot, then you probably won't ever need flood coverage at all. With this new insight, it's time for you to take a second look at your next car insurance bill! 

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