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> Chosing insurance-package on the rental car, FWIW Insurance is a negative expected value "asset", but it makes sense to buy it (not in this case necessarily)
by fullshark 6y ago
> Chosing insurance-package on the rental car,
FWIW Insurance is a negative expected value "asset", but it makes sense to buy it (not in this case necessarily). A one time massive negative hit to your finances could be devastating compared to periodic insurance payments. Expected value is a simplified representation of the distribution of outcomes which is really what you should be thinking about regarding risk management.
- klausjensen 6y agoAs far as I know, it is not even possible for me to rent a car completely without insurance and thereby risk having to pay for the full value of the car. :) So it is really about what kind of deductible you will have vs. what you pay for it. If I save 100 EUR 10 times renting a car and I expect to have one damage costing me 1000 EUR every 10 times I rent a car - it is neutral EV. If you can't afford the "hit" of a large deductible if an accident happes, then it would make sense to pay more here and now to reduce or eliminate that risk. I have saved thousands of euros over the years by electing to go with the included insurance, which typically is around 1000-1500EUR deductible, if I remember correctly. So if I crash my rental car the next three times I rent a car and have to pay 3x1000EUR deductible, I will still be in the green. Last time I picked an upgraded insurace, it was because we were a group that rented together, and I didn't want to risk friendsships over who might have dented the car etc. :)
- fullshark 6y agoI don't mean to defend this particular insurance, just point out that insurance is a negative expected value product (hence why insurance companies exist and are profitable) but it still makes sense to buy it a lot of the time.
- joelthelion 6y agoYou have that concept in poker too. It's called "bankroll management".