Charlie Munger — the late billionaire vice chairman of Berkshire Hathaway — was one of the greatest investors of all time. But he wasn't just a master of stock picking. He also had a remarkably clear-eyed, almost ruthless philosophy about how to spend money, and one of its most counterintuitive pillars was this: insurance should only be used for risks you truly cannot afford.

In a moment that raised eyebrows even among devoted followers, Munger revealed that once he became wealthy, he stopped buying fire insurance on his own home. And he didn't hedge the statement. "All intelligent people should do it the way I did," he said.

The Setting: Daily Journal's 2023 Annual Meeting

During the Daily Journal Corporation's annual shareholder meeting in February 2023, Munger was asked about "self-insurance" — the practice where businesses, or individuals, absorb certain risks themselves rather than paying premiums to an insurance company.

Munger's answer was characteristically blunt: he personally practiced a high degree of self-insurance, and so, he noted, did Warren Buffett.

Munger's Core Logic: Insurance Is Only for What You Can't Afford to Lose

Munger's reasoning was elegant in its simplicity. Given his level of wealth, buying fire insurance on his house simply didn't make mathematical sense. If the house burned down, he could simply write a check to rebuild it — no claims process, no adjusters, no paperwork, no fighting over coverage.

His philosophy boils down to a single rule:

Insurance exists to protect you from financial ruin — not to protect you from inconvenience.

If a potential loss wouldn't materially damage your financial life, paying premiums to avoid it is, in Munger's view, a losing trade. Not only do you pay for the true cost of the risk, you also pay for the insurer's claims processing, commissions, administrative overhead — and, as Munger pointedly added, the cost of other people's insurance fraud.

Munger explained that if his house burned down, he'd rather cut a check directly than spend his valuable time negotiating with an insurance company. For those with the means, carrying certain risks yourself is simply simpler and cheaper.

His Real-World Practice

Munger revealed that for most of his life, he carried very few insurance coverages:

• Collision coverage on his car: Dropped years ago, with very few exceptions.
• Fire insurance on his home: Stopped purchasing it entirely once he was genuinely wealthy.

The Delicious Irony

What made these comments particularly striking is that insurance is one of Berkshire Hathaway's core businesses. When the moderator pointed this out — essentially asking whether Munger's remarks hurt the company he helped lead — Munger didn't flinch. Even if his comments weren't great for Berkshire, he said, people who can afford to self-insure should consider doing so.

Few executives would publicly undermine their own company's bread and butter. But Munger built his reputation on intellectual honesty, even when it was commercially inconvenient.

The Critical Caveat: Don't Cancel Your Insurance Yet

Before you rush to cancel your homeowner's policy, there's an essential caveat buried in Munger's philosophy — one that he emphasized himself: self-insurance only works if you can genuinely afford the worst-case outcome.

Munger wasn't arguing that insurance is a bad product for everyone. He was arguing that most people buy insurance against losses they could easily absorb, while the entire point of insurance is to protect against catastrophic losses that would devastate you — serious liability, major medical events, or total loss of your home when rebuilding would wipe out your net worth.

In other words:

• Can a $500 fender-bender break you? Probably not — self-insure that risk.
• Can a lawsuit, a major illness, or the total loss of your home break you? Absolutely — that's what insurance is for.

One More Practical Hurdle: Your Mortgage Lender

There's also a legal and practical reality to consider. U.S. law generally doesn't require homeowners to carry home insurance — but if you have a mortgage, your lender almost certainly will. The home is their collateral, and they'll require you to protect it until the loan is paid off. So even Munger's approach is often off-limits until you own your home outright.

The Takeaway: Munger's Insurance Filter

Charlie Munger's philosophy wasn't anti-insurance — it was pro-math. His filter for any insurance decision is one every household can apply:

1. Ask yourself: if this loss happened tomorrow, would it meaningfully change my financial life?
2. If yes → buy the insurance. That's exactly what it's for.
3. If no → consider self-insuring, and keep the premiums in your own pocket.

It's the same logic Munger applied to investing: understand the real cost of what you're buying, ignore convention, and think for yourself. Whether you agree with dropping your home insurance or not, the framework — separating catastrophic risks from mere inconveniences — is pure Munger: simple, rational, and ruthlessly practical.