Self-Insuring Your Trip to Turkey

Okay, this is not a serious page. I just love the term“self-insurance,” so here’s a riff on it.

Feel free to go to the main Insurance page, or to Funny Stuff.


Self-Insurance…Wha’?

It used to be that if you had a doctor’s appointment or a fender bender or you dropped your camera and it broke, you paid the doc for his/her time, you paid the body shop to fix the dent, you bought a new camera and that was that.

In life, stuff happens.

But that was in the days when the car was a Model T Ford, the doctor charged US$1 for an hour’s consultation, and the camera was a Brownie.

Nowadays a shattered tail light can cost as much as the original Model T, ten minutes with the doctor (“take two $100 pills and email me a month from now—if you’re still alive”) can add a year to your mortgage (at least in the USA it can), and a bump or a humid day can wreck a $500 point-and-shoot digital imaging device.

So we’ve got insurance.

Insurance started out as a mutual thing: “somebody’s barn is gonna burn down when lightning strikes, so let’s all chip in a little now so one of us won’t have to pay a lot later.”

But to make sure everybody would cough up and the money would actually be there when the bolt landed, every barn-owner had to pony up the dollar on the spot.

So now there’s a pile of money in the middle of the table and nobody knows what to do with it.

“You keep it, Lester,” says one guy, so Lester does. He takes it to the bank so it won’t disappear in booze or bonnets.

The money earns interest!

The lightning doesn’t flash, and one day out there hoeing the sorghum, Lester has a bright idea of his own.

A light bulb goes on in his head and pretty soon the sorghum is only a sweet green memory, he’s given up farming, and he has himself a new business collecting and investing insurance premiums.

What if lightning NEVER strikes?

Everybody only loses a little. Lester wins big.

Lester wins so big that he can afford lots of protein for his kids, so Lester Jr. and the Lesterettes grow up brilliant and—no dummies, they—go into the insurance business. It beats farming, where lightning may strike your barn at any time.

Pretty soon there are lots and lots of people declaiming that It’s a Dangerous World Out There and You Had Better Do Something To Protect Yourself and, not coincidentally, selling insurance. Full-page ads. Broadsides on buses. Taxi-toppers.

Meanwhile, hundreds of farms lie abandoned, their former owners (currently insurance agents) not caring a hoot if lightning strikes the barn or not.

But of course lightning does strike. That’s how it operates.

The question, then, is: what is the probability, the risk, of lightning striking? And how much are you willing, or can you afford, to lose if/when it does?

Some risks—carmedicalfire-and-flood—are no-brainers. Bite the bullet and pay the premium. As for the others…

There wasn’t a word for it until insurance became so important (which happened just about the same time Lester got rich). Before that, stuff just happened and you paid for the bad parts.

But now, if you choose not to pay someone else to insure your loss, you automatically become an Honorary Lester, auto-start your own little one-person insurance company, sell yourself a virtual policy and make a deal with yourself not to pay any premiums unless you, the virtual policy-holder, actually make a virtual claim.

Such a deal! Try to get that from your regular insurance company.

When bad stuff happens you, the One-Person Self-Insurance Company, pay the claim—real money this time—out of your own pocket: you take the money out of your left pocket and put it into your right pocket, and shake (your own) hands. In other words, all the premiums come due at once—and perhaps then some—but the claim has been paid!

Ta-da! You’re self-insured!

Ironically, you don’t feel any more safe or secure under this arrangement—even though you are the insurance company so presumably you won’t welch or cavil when it comes time to pay a claim.

Unlike Lester, running your own little one-person insurance company tends not to make you rich. In fact, if you actually have to pay a claim, you may end up poorer.

Or not. What if, like Lester, lightning never strikes and you never have to pay a claim?

Forget the barn. How are you at math?

©2003 by Tom Brosnahan. All rights reserved.


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