Risk Aversion Applies to More Than Just Investing

I’m sometimes confounded by people who say they are very conservative investors and are unwilling to take on the routine equity volatility risk that is, well, pretty much necessary to beat inflation these days.  Yet at the same time, they carry no insurance of any sort for all the various unforeseen events and maladies that could occur.  While investing and insurance are two distinct financial topics, they both involve risk – and you’d think people would either be aggressive or conservative with both, no?

Various Types of Insurance

• Auto Insurance – Of course, this one’s a given.  In the US and many other countries, it’s required by law.  There are of course, varying levels of coverage, depending on your confidence as a drive, whether or not you drive a beater, and what kind of premiums you can afford.  Younger drivers pay an especially high price given the actuarial data showing their propensity for accidents.
• Health Insurance – This has been a major topic in recent years, but above and beyond the basic coverage required and Obamacare’s tenants, there are other side considerations.  For instance, to try and drive some tax benefits, I max out my Flex Savings Account, and people can optimize the type of plan they choose based on their family situation and the deductible they want to pay.  Younger people who are virtually never in the health system often shoot for a higher deductible, lower fee plan.  This changes as they age of course.
• Life Insurance – Here’s another one I’m often surprised people go without.  I just got the bill for my wife’s policy so this was fresh in my mind.  Even though she’s not working now, in the event of her demise, I’d obviously have lots of expenses ranging from childcare to trying to replace some of her future income we planned on when she returns to the workforce.  Again, if one is truly risk-averse and worried about losing a portion of their investment  funds in the stock market, how would the prospect of losing a spouse’s income and financial contributions not cause concern?
• Mortgage Protection – So, while the above example subject may be risk-averse and avoid stocks altogether, they aren’t worried about loss of income causing them to lose their home?  There are options out there to protect against such an outcome like mortgage protection.  I suppose much depends on what one’s assessment is of the likelihood to incur long-term disability, illness, etc., but it just seems odd to be unwilling to take any market risk while ignoring all the other risks out there.