Billionaire Charlie Munger, Who Died at 99, Skipped Insurance on His Mansion Since He Could Just Write a Check to Rebuild — ‘All Intelligent People Do It My Way’

Insurance is one of those expenses that can feel particularly painful when nothing goes wrong, but it's often one of those things that can't be avoided. Not only is some insurance required by law, but it can also provide peace of mind in the event of something catastrophic.

Billionaire Charlie Munger, however, reached a point where he decided some risks just weren't worth insuring against. The longtime Berkshire Hathaway vice chairman had enough money to absorb certain losses himself, so why pay an insurance company to take a risk he could comfortably handle?

Munger explained his thinking at the Daily Journal Corporation's annual shareholder meeting in February 2023, only a few months before his death. He was asked about large companies that were choosing to self-insure against certain risks.

"In my own life, I'm a big self-insured and so is Warren," Munger said, referring to himself and Warren Buffett.

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Munger explained that it made little sense for him to carry fire insurance on his house because he could afford to rebuild it if it burned down.

"You should insure against things you can't afford to pay for yourself," Munger said. "But if you can afford to take the bumps," an unexpected expense might not be worth paying someone else to cover.

"And all intelligent people do that way," he said, before correcting himself.

"I don't say all, but—maybe I should say, all intelligent people should do it my way."

Munger then went into more detail about why he favored self-insurance.

"There should be way more self-insurance in life," he said. "There's a lot of waste. You're paying when you buy insurance for the other fellows' frauds—and there's a lot of fraud in life."

He also pointed to the costs that come with insurance beyond the actual risk itself, including claims, commissions, and the time involved in dealing with insurers.

"Think of what I've saved in my life," Munger said.

The point was not that insurance had no value. It was that someone with enough money could decide that certain risks were cheaper to handle personally.