10 ms·

Because fire isn't going to affect you, obviously. The "security" of your house is only part of what folks buy such insurance for. Only the privileged can do s

Because fire isn't going to affect you, obviously. The "security" of your house is only part of what folks buy such insurance for. Only the privileged can do such things and get away with it. You'd have to have enough money to have a nest egg large enough to replace the stuff you need and care about, money to replace documents and ID, money for a hotel and travel, and money leftover so that a second even in a short timeframe does not leave you horribly off. Poor people go without insurance all the time, but that is more the lack of ability to pay the premiums. And of course they are charging more than they are paying out - much like a retailer charges more for a product than it cost them to make. There are exceptions in both cases: A car accident can mean someone gets more benefits than they pay in and retailers take losses on some things - but it isn't the norm. The entire point, however, is that the risk is spread out so that most folks aren't hit with a life-destroying event when bad things happen. That's the real service you are paying a bit extra for. I find it weird that you'd judge teh company on making money. You can judge by how well they pay out claims - how much time it takes, what percentage they pay, and so on. Or how much money they make in total - and this should probably be something over a few years to balance out natural disasters.

janekm 8y ago
That nest egg is much better insurance overall though, as it protects in many more scenarios... job loss, bad boss, loss of residence rights... The basic rule of insurance is "never insure that which you would be able to pay out yourself". There may be a few exceptions where you know that the risk/premium ratio is in your favour... I twice got my banks purchase protection "insurance" to replace bikes that a bike insurance wouldn't have even insured in that city. And that was with a free bank account.
- Nursie 8y ago
  > "never insure that which you would be able to pay out yourself". This is silly as a rule, IMHO. I could pay out for all new stuff if there was a fire, but it's a damn site cheaper to pay a few hundred a year for insurance. The point of insurance isn't that they pay out an individual less than they take in, but the group in aggregate.
  - lotsofpulp 8y ago
    Unless you know something the insurance seller does not that makes you more likely to be paid out than others, then it is a waste of money to buy insurance for a loss that you can afford. Assuming you have no extra information that gives you an edge over the insurance company, insurance is only beneficial for a loss which you cannot afford. Otherwise you’re basically paying someone else to invest your money when you can do it for 3 basis points at Vanguard/Fidelity/Schwab. This is also why whole life insurance is a waste of money, ignoring any tax advantages which don’t apply to most people. Edit: This is also why states allow people with sufficient funds to self insure their vehicle. If you have a couple million liquid assets, you don’t need to pay someone else to pay for your lawyers and and healthcare costs, you can just do it yourself.
    - Swenrekcah 8y ago
      Surprised (or perhaps not) to learn that cars can be self-insured in the USA. Where I’m from, the main objective of mandatory car insurance is to pay for the life of the people you might kill or seruously injure. Thst can be a considerable amount that I’m not sure anyone would be eager to pay out themselves, even if they’ve got the funds.
      - gambiting 8y ago
        Like, it doesn't make sense. My insurance policy is about $600/year and covers up to 25 million(!!!) euro in 3rd party damages. Like, I'd need to crash into several Bugatti Chirons or a plane to actually exhaust my policy. I guess the reason why US allows it is because the society is so litigious - if you have that amount of money to self insure you also have enough money to fight pretty much any claim against you.
        sgift 8y ago
        > My insurance policy is about $600/year and covers up to 25 million(!!!) euro in 3rd party damages. Like, I'd need to crash into several Bugatti Chirons or a plane to actually exhaust my policy. Or one crash where you injure someone so bad that they cannot work anymore for the rest of their life, maybe need specialized support and so on. The damages in property are usually the least important part of a car crash.
- tomatocracy 8y ago
  Self insuring is a completely valid strategy. People do it all the time - that’s what a deductible is meant to allow for. Only makes sense to pay for insurance in a financial sense to cover losses you couldn’t comfortably afford to cover yourself or where you are required to by law. Having said that, psychologically there is a behaviour changing effect of insurance even where it’s not financially needed which is also beneficial at least for me - eg you don’t worry about taking your expensive things on holiday, you don’t self ration medical treatment, etc. I value this and so am probably overinsured in a financial sense but I view it as money well spent.
  - thaumasiotes 8y ago
    > psychologically there is a behaviour changing effect of insurance even where it’s not financially needed which is also beneficial at least for me - eg you don’t worry about taking your expensive things on holiday, you don’t self ration medical treatment, etc. This is called "moral hazard".
    - vinceguidry 8y ago
      The deductible is also intended to take care of moral hazard. You still have some skin in the game. Insurance companies are wise to never shoulder all of the risk.
      - ravar 8y ago
        Why is this downvoted, this is actually an important part of insurance.
      - AnthonyMouse 8y ago
        That would only fix it if the risk was being taken with no benefit. If the person has a $5000 deductible and could spend $300 to prevent a 5% chance at $50,000 in damage, now they won't, because their expected value of the loss has gone from -$2500 to -$250, which is now better for them than paying the prevention cost. It also makes incentives weird, e.g. with a $5000 deductible you'd prefer a 5% chance at $50,000 in damage (expected value -$250) over a 10% chance at $5000 in damage (expected value -$500).
alexis_fr 8y ago
You can’t say insurances will be there every second in case of life-threatening event, given how many times we’ve seen them ask for a paper you don’t have, and how often it is required to sue them to get the supposed benefits, years later.
breatheoften 8y ago
I really start to struggle with the concept of insurance whenever I imagine the percentage of people working at the insurance company who’s primary incentives involve making sure that I do not get the payout I need should a disaster strike ... how many people are there strategizing the legalese and structure of the policies in a way carefully designed to appeal to me at sale time but to hurt me at claim time ...? I also shudder at the thought of overly large executive teams milking the profit stream of the company to ensure optimal balance sheet (minimal legal unleveraged asset amounts + maximum access to government lender of last resort backstops). It’s also very hard for me to imagine the nature of the value chain back to me that comes from the CEO of an insurance company flying around in a private jet at great expense — it’s just not possible for me to imagine that the team of suits in jets running the insurance company could ever be engaging in an activities beneficial to me as they pursue typical corporate business activities... As a consumer, I think the most sensible strategy for picking insurance involves modeling the profit center clauses of the policies to find who is most likely to be bilked and trying to estimate whether you are more or less likely than the average consumer of the product to hit one of those likely policy “profit centers” ... In markets where the profitability of insurance companies is regulated, I have a lot of trouble believing that “boondoggle machines” aren’t invented throughout the enterprise to create false cost drivers that ultimately turn profits into costs and higher executive salaries/ bonuses - a kind of profit money laundering. I think that trust is very valuable but it’s hard for me to believe that insurance companies as a general category are likely to be worthy of trust. If anyone has some arguments how to get over this hangup, would love help shifting my mindset to a less negative outlook here ...
- mcguire 8y ago
  Your arguments apply to every company---do you not deal with grocery stores?
  - breatheoften 8y ago
    This is a good point I think — but I don’t find myself biased to perceive buying groceries as entering into an adversarial relationship with my grocery store — maybe because the relationship is transactional and tends to end immediately after the transaction... Maybe I’m wrong but I don’t think there is as direct a conflict between me and the grocery store — me being happy with a particular purchase is not generally associated with the grocery store being “unhappy” that a particular product “works out for me” when I consume it ...

janekm 8y ago

That nest egg is much better insurance overall though, as it protects in many more scenarios... job loss, bad boss, loss of residence rights... The basic rule of insurance is "never insure that which you would be able to pay out yourself". There may be a few exceptions where you know that the risk/premium ratio is in your favour... I twice got my banks purchase protection "insurance" to replace bikes that a bike insurance wouldn't have even insured in that city. And that was with a free bank account.

Nursie 8y ago
> "never insure that which you would be able to pay out yourself". This is silly as a rule, IMHO. I could pay out for all new stuff if there was a fire, but it's a damn site cheaper to pay a few hundred a year for insurance. The point of insurance isn't that they pay out an individual less than they take in, but the group in aggregate.
- lotsofpulp 8y ago
  Unless you know something the insurance seller does not that makes you more likely to be paid out than others, then it is a waste of money to buy insurance for a loss that you can afford. Assuming you have no extra information that gives you an edge over the insurance company, insurance is only beneficial for a loss which you cannot afford. Otherwise you’re basically paying someone else to invest your money when you can do it for 3 basis points at Vanguard/Fidelity/Schwab. This is also why whole life insurance is a waste of money, ignoring any tax advantages which don’t apply to most people. Edit: This is also why states allow people with sufficient funds to self insure their vehicle. If you have a couple million liquid assets, you don’t need to pay someone else to pay for your lawyers and and healthcare costs, you can just do it yourself.
  - Swenrekcah 8y ago
    Surprised (or perhaps not) to learn that cars can be self-insured in the USA. Where I’m from, the main objective of mandatory car insurance is to pay for the life of the people you might kill or seruously injure. Thst can be a considerable amount that I’m not sure anyone would be eager to pay out themselves, even if they’ve got the funds.
    - gambiting 8y ago
      Like, it doesn't make sense. My insurance policy is about $600/year and covers up to 25 million(!!!) euro in 3rd party damages. Like, I'd need to crash into several Bugatti Chirons or a plane to actually exhaust my policy. I guess the reason why US allows it is because the society is so litigious - if you have that amount of money to self insure you also have enough money to fight pretty much any claim against you.
      - sgift 8y ago
        > My insurance policy is about $600/year and covers up to 25 million(!!!) euro in 3rd party damages. Like, I'd need to crash into several Bugatti Chirons or a plane to actually exhaust my policy. Or one crash where you injure someone so bad that they cannot work anymore for the rest of their life, maybe need specialized support and so on. The damages in property are usually the least important part of a car crash.
tomatocracy 8y ago
Self insuring is a completely valid strategy. People do it all the time - that’s what a deductible is meant to allow for. Only makes sense to pay for insurance in a financial sense to cover losses you couldn’t comfortably afford to cover yourself or where you are required to by law. Having said that, psychologically there is a behaviour changing effect of insurance even where it’s not financially needed which is also beneficial at least for me - eg you don’t worry about taking your expensive things on holiday, you don’t self ration medical treatment, etc. I value this and so am probably overinsured in a financial sense but I view it as money well spent.
- thaumasiotes 8y ago
  > psychologically there is a behaviour changing effect of insurance even where it’s not financially needed which is also beneficial at least for me - eg you don’t worry about taking your expensive things on holiday, you don’t self ration medical treatment, etc. This is called "moral hazard".
  - vinceguidry 8y ago
    The deductible is also intended to take care of moral hazard. You still have some skin in the game. Insurance companies are wise to never shoulder all of the risk.
    - ravar 8y ago
      Why is this downvoted, this is actually an important part of insurance.
    - AnthonyMouse 8y ago
      That would only fix it if the risk was being taken with no benefit. If the person has a $5000 deductible and could spend $300 to prevent a 5% chance at $50,000 in damage, now they won't, because their expected value of the loss has gone from -$2500 to -$250, which is now better for them than paying the prevention cost. It also makes incentives weird, e.g. with a $5000 deductible you'd prefer a 5% chance at $50,000 in damage (expected value -$250) over a 10% chance at $5000 in damage (expected value -$500).

alexis_fr 8y ago

You can’t say insurances will be there every second in case of life-threatening event, given how many times we’ve seen them ask for a paper you don’t have, and how often it is required to sue them to get the supposed benefits, years later.

breatheoften 8y ago

I really start to struggle with the concept of insurance whenever I imagine the percentage of people working at the insurance company who’s primary incentives involve making sure that I do not get the payout I need should a disaster strike ... how many people are there strategizing the legalese and structure of the policies in a way carefully designed to appeal to me at sale time but to hurt me at claim time ...? I also shudder at the thought of overly large executive teams milking the profit stream of the company to ensure optimal balance sheet (minimal legal unleveraged asset amounts + maximum access to government lender of last resort backstops). It’s also very hard for me to imagine the nature of the value chain back to me that comes from the CEO of an insurance company flying around in a private jet at great expense — it’s just not possible for me to imagine that the team of suits in jets running the insurance company could ever be engaging in an activities beneficial to me as they pursue typical corporate business activities... As a consumer, I think the most sensible strategy for picking insurance involves modeling the profit center clauses of the policies to find who is most likely to be bilked and trying to estimate whether you are more or less likely than the average consumer of the product to hit one of those likely policy “profit centers” ... In markets where the profitability of insurance companies is regulated, I have a lot of trouble believing that “boondoggle machines” aren’t invented throughout the enterprise to create false cost drivers that ultimately turn profits into costs and higher executive salaries/ bonuses - a kind of profit money laundering. I think that trust is very valuable but it’s hard for me to believe that insurance companies as a general category are likely to be worthy of trust. If anyone has some arguments how to get over this hangup, would love help shifting my mindset to a less negative outlook here ...

mcguire 8y ago
Your arguments apply to every company---do you not deal with grocery stores?
- breatheoften 8y ago
  This is a good point I think — but I don’t find myself biased to perceive buying groceries as entering into an adversarial relationship with my grocery store — maybe because the relationship is transactional and tends to end immediately after the transaction... Maybe I’m wrong but I don’t think there is as direct a conflict between me and the grocery store — me being happy with a particular purchase is not generally associated with the grocery store being “unhappy” that a particular product “works out for me” when I consume it ...