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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

• 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.
        • adetrest 8y ago
          It adds up really fast, especially when deaths or disabilities (even worth from a financial perspective) are the result of the crash.
          • foobarian 8y ago
            Apparently it is a problem in China as well. https://slate.com/news-and-politics/2015/09/why-drivers-in-china-intentionally-kill-the-pedestrians-they-hit-chinas-laws-have-encouraged-the-hit-to-kill-phenomenon.html https://slate.com/news-and-politics/2015/09/why-drivers-in-c...
        • donaltroddyn 8y ago
          > Like, I'd need to crash into several Bugatti Chirons or a plane to actually exhaust my policy. Or injure a single person to an extent that requires lifelong fulltime medical care.
      • sokoloff 8y ago
        The compulsory insurance limits in most states are laughably/ludicrously low. In MA, I have to carry $40K bodily injury liability, and $5K property liability. Literally, I could be responsible for an accident that totals a 15 year old car and gives the driver an ambulance ride and a couple day hospital stay and have my compulsory insurance not be enough to cover the entire liability. Of course, nearly everyone carries a substantial (10-50x) multiple of the compulsory minimums in auto-specific liability policies, and if you have any amount of wealth accumulated, it's common to have an additional umbrella policy. [0]-https://usinsuranceagents.com/massachusetts-car-insurance-requirements https://usinsuranceagents.com/massachusetts-car-insurance-re...
    • Nursie 8y ago
      This is nonsense, sorry. As an individual, if there is a catastrophic fire a few years into a policy, I am down tens of thousands, having paid out a few hundred in premiums.
      • lotsofpulp 8y ago
        Not many people can afford the loss caused by a catastrophic fire, in which case it does make sense to purchase insurance. But if you are a millionaire and have a $200k house, then you don't really need to buy insurance for the house since you have ample funds to purchase or build a new one if the need arises.
        • Nursie 8y ago
          That still makes no sense at all. If you are millionaire with ample funds, you'd still be down massively compared to if you took out the insurance. Example - The average UK home contains £35K of stuff. The average annual contents insurance premium is £139. You've been paying for ten years and "Oh no! A fire destroyed all my stuff". You're better off by £33600. In aggregate the insurer makes money, but they don't necessarily make money from every individual. This is where the model makes sense for the buyer and the seller.
          • lotsofpulp 8y ago
            Your assumptions are massively overestimating the probability of loss. If insurance premium is only $139, then the probability of loss must be correspondingly low such that the insurance company can make a profit (on aggregate) before having to pay out $35k.
            • brewdad 8y ago
              Ok. If you are a millionaire who really would think nothing of shelling out $35,000 tomorrow, what's the best case scenario of going without insurance? 30 years saving $139 a year means you've saved $4200 by going uninsured. $4200 is noise to someone like this. Meanwhile, if you do suffer a loss, you will be down far more.
    • gambiting 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. That's....insane. Fires happen. Theft happens. Thunderstorms happen. Kids breaking things happen. Yes I can "afford" to replace most things in my house - but why would I risk all of my savings if I can pay ~20 quid a month and not worry about it??
      • sokoloff 8y ago
        I would change the qualifier to "comfortably afford" , but I do self-insure on most things. Take an extremely poor insurance bet as an example. The electronics store will offer you an extended warranty plan on your new TV. An LG 55" LED TV (UK6090PUA) is $400 right now at BestBuy. 2 years of "protection plan" on that TV is $50. Do you think that anywhere near 1 in 8 TVs need any kind of service in 2 years, let alone something that would require the replacement of the TV? Sure, there are people who pay $450 for their TV instead of $400 and come out ahead. The vast majority don't and most people can easily shoulder the burden of buying a new TV when their current one breaks. (By the way, that insurance policy allows the insurer, at their sole discretion, to pay you the market value of your TV rather than repair/replace it.) I self-insure against collision on our cars (meaning I dropped collision coverage). Collision insurance (covering repairing/replacing of our cars) was running around $1000 per year for 2 drivers and 3 cars. In 20 years, between insurance savings and investing the savings, I've banked about $40K by not carrying collision. Not only could I cover a collision now, I could buy 3 replacement cars outright and have money left over and don't have to deal with any insurance paperwork to do so... I do carry liability insurance (at high limits) for auto. I have our home insured. I have a high-deductible medical insurance plan. I'm not anti-insurance in general; I am anti-insurance for losses that can be easily weathered.
        • Retric 8y ago
          I would drop that to trivially afford. Getting a new TV is the kind of thing most people on HN would barely think twice about. At which point the cost benifit simple. But, move up a few rungs to say a 5,000$ massage chair and you could replace it or do without but most people would feel it. Further, the policy is likely to be closer to 1/20th the price at something like 250$. It’s still a bad deal, but you can feel better about your overall purchase knowing it will last at least X years.
    • deleted 8y ago
      [deleted]
  • fouc 8y ago
    The house always wins. In the long run, all things being equal, it's cheaper to never insure and instead pay out of pocket for your losses. I'd only insure for truly financially ruinous scenarios. Not for material goods or airfare, etc.
    • Nursie 8y ago
      > In the long run, all things being equal, it's cheaper to never insure and instead pay out of pocket for your losses. Only in aggregate, not necessarily for any given individual.
• 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).