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108Course · Foundation

Insurance

Buying the tail risk you cannot bear.

The Course

Insurance is the deliberate purchase of tail risk you cannot bear. This course teaches you to distinguish the risks worth insuring from the ones worth accepting — a decision most households get wrong in both directions.

You will read a declarations page line by line, assemble the six-policy stack a household needs, and eliminate the coverage that is priced above its actuarial value.

Outcomes
  • 01

    Distinguish risks worth insuring from risks worth accepting.

  • 02

    Read a policy declarations page.

  • 03

    Assemble an insurance stack suited to your household.

Prerequisites
  • — Course 102 — Personal Finance.
Pacing

1 week · ~3 hours.

  • IModule · ~1 hour.

    The theory of insurance

    Why a rational household pays a premium.

    Insurance works because risk, pooled, is bearable that would be catastrophic alone. Understanding the pool is prerequisite to buying from it.

    What You Will Be Able To Do
    • — Explain risk pooling in one paragraph.
    • — State the insure-ruin, absorb-inconvenience rule and apply it.
    • — Recognize the products designed to be sold rather than bought.
    Why here

    The theory is the correction against the marketing. Learn it first.

    1. 01Risk poolingArticle12m
    2. 02What to insure and what not toArticle12m
  • IIModule · ~1.5 hours.

    The policies of a household

    Health, life, disability, home, auto, umbrella.

    A well-insured household holds roughly six policies: health, term life, long-term disability, home or renters, auto, and umbrella liability. This module walks each one.

    What You Will Be Able To Do
    • — Assemble the six-policy stack for your household.
    • — Right-size each policy — coverage and deductible — to your situation.
    • — Eliminate coverage priced above its actuarial value.
    Why here

    The stack is standard; the sizing is personal. This module handles both.

    1. 01Health insuranceArticle12m
    2. 02Term lifeArticle12m
    3. 03Long-term disabilityArticle12m
    4. 04Property and casualtyArticle12m
    5. 05Umbrella liabilityArticle12m
  • IIIModule · ~30 minutes.

    Reading a policy

    The declarations page, line by line.

    The declarations page is the summary of the contract you actually bought. Reading it is a fifteen-minute skill with fifty-year consequences.

    What You Will Be Able To Do
    • — Read a declarations page line by line.
    • — Identify the endorsements that materially change coverage.
    • — Locate the exclusions that most commonly bite.
    Why here

    The claim you are refused is almost always in a line you did not read at purchase.

    1. 01Anatomy of a policyVisuals8m
    2. 02Quiz: Insurance scenariosQuiz10m
A Note from the Faculty

The rule of thumb is austere: insure ruin, absorb inconvenience. Households violating either half of that rule pay for it, in premiums or in catastrophe.