Unfortunately, a disaster can be so great that it could substantially alter your life.

Warranties and insurances are no strangers to us. Every time we make a purchase, salespeople try to shove us extended warranties. Every time we change jobs, we look for the best medical insurance for our family and every time we get a car insurance bill, we have to question the premium hike yet again.

I wish more people would cover this topic. These possible expenses touches us on so many levels and making the wrong decision could literally transform our lives. I shouldn’t complain though. The only reason I even wrote this post was because recent events reminded me of its importance. Let me tell you share them with you (and how it taught me that even living in sunny Southern California can mean rainy days).

When It Rains, It Pours

It’s illogical how often bad events seem to happen in batches but it seems to occur quite a bit. During the past week:

  1. Emma’s Laptop Broke – Technically, only the power connector is acting up but without power, the whole laptop is useless. Just getting it looked at cost $70 so we might as well look for a new one.
  2. Website Crashed – If you had trouble leaving a comment or difficulty accessing the site the last few days, just imagine a self proclaimed technical genius scratching his head at a overload problem that does not go away simply by kicking the equipment. (Hopefully, it’s fixed now but the issue seems to be intermittent.)
  3. My Phone Broke – It seems like a software bug or something, but I cannot use the ear piece while speakerphone and headphones work. Update – after 2 days, it started working again, but I won’t be surprised if it malfunctions again.

Okay. Maybe not life threatening but you can appreciate how annoying and frustrating a rush of events can become. There’s a part of me that wished I paid for extended warranties or a premium for a managed hosting solution, but if given the chance, I would still decline.

Why (you may ask)? Because I can handle the worst case scenario.

The Only Factor I Look At

When I decide whether extended warranty or insurance is necessary, I only ask myself one question: What will happen if disaster strikes?

Logically, we know that companies offer insurance and extended warranty policies because they can make more money. Even though disasters can occur on any individual scenario, the premiums as a whole more than covers for the charges plus administration cost. Do I want to help pay for the salesperson’s commission? Not really.

As an individual, isolated incidents may create the illusion that the extra warranty policies make sense. In the long run though, the numbers are heavily stacked against it.

Now, there’s a big exception to this rule, and a very important one at that so read carefully. The only time when I welcome coverage is if I cannot handle the financial consequences of not being covered. Home insurance, for instance, is a must because losing your home due to a fire or flood can ruin your financial life. Car collision coverage for others is important too because the unfortunate event can significantly add financial burden to the possible emotional impact of injuring someone else. The premium paid for these two examples may end up being more wasteful than the extended warranty on a digital camera, but I’m going to get myself covered whenever I’m happy I never submitted a claim.

For me, it’s as simple as that. If your decision is more complex then that, then I suggest giving this idea some thought. Think of the worst case scenario and if you can handle the financial impact, say no to coverage. Otherwise, pony up some cash and let someone else worry about what might or might not happen.

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