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Investing in yourself only works on average. So you pay off your mortgage and decide to cancel your insurance and start investing the monthly payments yourself

Investing in yourself only works on average. So you pay off your mortgage and decide to cancel your insurance and start investing the monthly payments yourself. The next day your home burns down and you don't have enough investment money to cover even a small fraction of your home's worth. Of course you can get lucky too. After 30 years of investing your monthly insurance payment you have the full value of your home and its items. Now there is no need to contribute to your insurance fund ever again. Most people don't wish to gamble in this way when their homes are at stake and instead pool their risk with other home owners. The group managing these assets is an insurance company. The home owners are willing to pay a slight premium towards the operating expenses of the insurance company.

lutusp 14y ago
> Investing in yourself only works on average. No, not true. On average, you are much better off investing the insurance payments than paying for insurance. If this were not true, insurance companies would be reluctant to offer you a policy. But notice that insurance companies are always willing to write a policy -- which, by its very existence, must benefit them on average. > Most people don't wish to gamble ... But buying insurance is as much a gamble as not buying insurance. The difference is the number of players who are gambling with you. Obviously if you cannot afford to lose the insured item, that's different. My advice is for possessions the loss of which doesn't cripple your life. > The home owners are willing to pay a slight premium towards the operating expenses of the insurance company. My point is that the owner would be way ahead by investing the insurance payments rather than handing them over to an insurance company.
- NateDad 14y ago
  You are why universal healthcare is so essential - because most people are really bad at calculating their own risk vs. reward. Risk: $1000 a year in home insurance that could be used to buy something else. Reward: the 1 in 1000 chance that your home burns down, you aren't completely boned. The risk is relatively small. $1000 a year isn't going to change your life. But the safety that it buys you is huge, because it prevents your life from being devastated should something unlucky happen.
  - lutusp 14y ago
    > most people are really bad at calculating their own risk vs. reward. Considering how easy it is, that's unlikely. After all, consider: * If you can afford to lose the insured item, and * If a mortgage lender doesn't require you to carry insurance, and * If an insurance company wants to sell you a policy, * Then you're better off self-insuring. This is not rocket science. > You are why universal healthcare is so essential I agree that universal health care is essential, simply because of where we are, not on basic principles. But it's equally true that health insurance is the reason why health costs are spiraling out of control -- people aren't bargaining for good deals in that "market" because the insurance company is paying. If we were required to pay out of pocket for each health expenditure, we would see a big decline in costs. The evidence? Many doctors and dentists have two price lists -- one for the insured and one for the uninsured. The uninsured pay less. I emphasize that we definitely need universal health care, and the sooner the better. Nothing I say should be interpreted as doubting this necessity. But this is only because we've painted ourselves into a corner.
- snowwrestler 14y ago
  > On average, you are much better off investing the insurance payments than paying for insurance. If this were not true, insurance companies would be reluctant to offer you a policy. Your maximum benefit when making this choice is the profit margin of the insurance company, which is typically well under 10%--hardly "way ahead."
  - lutusp 14y ago
    > Your maximum benefit when making this choice is the profit margin of the insurance company, ... No, they aren't the same. ... which is typically well under 10%--hardly "way ahead." I can't find any reliable figures for property insurance profits, so I'm going to accept your figure. But that's not the whole story -- the insurance company's profit figure is not the same as a policy holder's loss, they're based on different calculations. In any case, we're comparing a net loss (policy holder) to a net gain (self-insurer who invests his own money). That's not a difficult decision to make.

lutusp 14y ago

> Investing in yourself only works on average. No, not true. On average, you are much better off investing the insurance payments than paying for insurance. If this were not true, insurance companies would be reluctant to offer you a policy. But notice that insurance companies are always willing to write a policy -- which, by its very existence, must benefit them on average. > Most people don't wish to gamble ... But buying insurance is as much a gamble as not buying insurance. The difference is the number of players who are gambling with you. Obviously if you cannot afford to lose the insured item, that's different. My advice is for possessions the loss of which doesn't cripple your life. > The home owners are willing to pay a slight premium towards the operating expenses of the insurance company. My point is that the owner would be way ahead by investing the insurance payments rather than handing them over to an insurance company.

NateDad 14y ago
You are why universal healthcare is so essential - because most people are really bad at calculating their own risk vs. reward. Risk: $1000 a year in home insurance that could be used to buy something else. Reward: the 1 in 1000 chance that your home burns down, you aren't completely boned. The risk is relatively small. $1000 a year isn't going to change your life. But the safety that it buys you is huge, because it prevents your life from being devastated should something unlucky happen.
- lutusp 14y ago
  > most people are really bad at calculating their own risk vs. reward. Considering how easy it is, that's unlikely. After all, consider: * If you can afford to lose the insured item, and * If a mortgage lender doesn't require you to carry insurance, and * If an insurance company wants to sell you a policy, * Then you're better off self-insuring. This is not rocket science. > You are why universal healthcare is so essential I agree that universal health care is essential, simply because of where we are, not on basic principles. But it's equally true that health insurance is the reason why health costs are spiraling out of control -- people aren't bargaining for good deals in that "market" because the insurance company is paying. If we were required to pay out of pocket for each health expenditure, we would see a big decline in costs. The evidence? Many doctors and dentists have two price lists -- one for the insured and one for the uninsured. The uninsured pay less. I emphasize that we definitely need universal health care, and the sooner the better. Nothing I say should be interpreted as doubting this necessity. But this is only because we've painted ourselves into a corner.
snowwrestler 14y ago
> On average, you are much better off investing the insurance payments than paying for insurance. If this were not true, insurance companies would be reluctant to offer you a policy. Your maximum benefit when making this choice is the profit margin of the insurance company, which is typically well under 10%--hardly "way ahead."
- lutusp 14y ago
  > Your maximum benefit when making this choice is the profit margin of the insurance company, ... No, they aren't the same. ... which is typically well under 10%--hardly "way ahead." I can't find any reliable figures for property insurance profits, so I'm going to accept your figure. But that's not the whole story -- the insurance company's profit figure is not the same as a policy holder's loss, they're based on different calculations. In any case, we're comparing a net loss (policy holder) to a net gain (self-insurer who invests his own money). That's not a difficult decision to make.