2 ms·

I've seen this argument before, but I think it's totally backwards. The article calls insurance "a wager with the insurance company." It is not a wager at all

I've seen this argument before, but I think it's totally backwards. The article calls insurance "a wager with the insurance company." It is not a wager at all. A wager is when you bet some amount of money on the hopes that you'll get back a bigger amount of money. It introduces greater uncertainty and volatility into your financial situation: you'll take either a gain or a loss depending on the outcome of some not yet determined event. Not buying insurance is a wager with life. You wager your belongings, and if nothing happens to them you "win" the money you saved by not buying insurance. Like any wager, you have greater uncertainty and volatility than if you hadn't taken the wager. Buying insurance is the anti-wager: you have a known outcome (you'll be out the premium but still have your belongings), which gives you decreased uncertainty and volatility. Yes, insurance companies make a profit by charging more in premiums than the expected value of their claims. But the alternative is to make a big wager with life (the value of your house, car, etc) for a relatively small return (the savings from not paying an insurance premium). (This is ignoring any of the practical conveniences of having a pro handle all the logistics in the case of an accident).

DougWebb 15y ago
I think the point is that the premium is part of your belongings, and the probability is that the premium over the period you have insurance is more than the amount of any claims you'll get reimbursed from the insurance. You're therefore better off paying those premiums to yourself until you've built up a large enough fund to replace whatever you wanted to insure. Now you're self-insured in-perpetuity, with no further costs. The risk is that you're going to have an accident before you've built up that fund. Insurance helps there, but they're going to jack up your premium rates and make you pay for the claim. In essence they're giving you a high-interest loan to pay for your accident, except the loan payments never stop. If you've got credit, an actual loan is probably better than the insurance for this situation.

DougWebb 15y ago

I think the point is that the premium is part of your belongings, and the probability is that the premium over the period you have insurance is more than the amount of any claims you'll get reimbursed from the insurance. You're therefore better off paying those premiums to yourself until you've built up a large enough fund to replace whatever you wanted to insure. Now you're self-insured in-perpetuity, with no further costs. The risk is that you're going to have an accident before you've built up that fund. Insurance helps there, but they're going to jack up your premium rates and make you pay for the claim. In essence they're giving you a high-interest loan to pay for your accident, except the loan payments never stop. If you've got credit, an actual loan is probably better than the insurance for this situation.