3 ms·

This is a ridiculous argument. Insurance works because not everyone's house burns down. Only some people's do. The people whose houses don't burn down pay for t

by NateDad 14y ago

This is a ridiculous argument. Insurance works because not everyone's house burns down. Only some people's do. The people whose houses don't burn down pay for those whose houses do. investing to repay for your house should it burn down only works if you know you're not going to have your house burn down for 30 years. What if your house burns down the day after you buy it? if you had insurance, you'd be fine. If you put that initial $500 (or whatever) in an investment, you have.... $500.

lutusp 14y ago
You're missing the point that, on average, insurance benefits the insurance company, not the policy holders. How do we know this? Because insurance companies are eager to sell you a policy. If the policy benefited you on average, insurance companies would go out of business on average. But ... they don't. > The people whose houses don't burn down pay for those whose houses do. Yes, and I don't smoke in bed. Why should I pay for the risky and unhealthy habits of others? But more importantly, I'm better off investing my money against a future loss than handing it over to an insurance company. This is only true if I can afford to lose the insured item, but many people buy insurance without asking themselves this basic question. > What if your house burns down the day after you buy it? This is all about probability, not focusing in on the worst possible case. Insurance companies naturally enough want you to focus in on the worst possible case. But in the long term, and statistically, you're better off self-insuring -- unless a mortgage requires you to carry insurance, or unless you simply cannot afford to lose the insured item.
- NateDad 14y ago
  Your life is not a statistic. You are not the average. If I gave you $20 to play russian roulette, would you do it? It's only a 1/6 chance of death. On average you'll be up $20, right? I'm guessing most people would not do it. The risk of death is simply not worth the reward. You keep talking about "things you can afford to lose". Houses NEVER fall into that category. So why do you keep bringing it up? We're talking about houses, not the DVD player you buy at Best Buy.
  - lutusp 14y ago
    > You keep talking about "things you can afford to lose". Houses NEVER fall into that category. Of course they do. Consider -- do you want to be financially solvent, or own a house? Many people choose being financially solvent. Others walk away from houses whose mortgages are larger than the house's actual value. In both these cases, a house is just another commodity, a choice, not an absolute necessity like breathing. > So why do you keep bringing it up? Because it's true, as I just demonstrated.
- pdonis 14y ago
  You're missing the point that, on average, insurance benefits the insurance company, not the policy holders. How do we know this? Because insurance companies are eager to sell you a policy. As a general argument, this is not valid. Consider a parallel argument: on average, selling food benefits the grocery store, not its customers. How do we know this? Because the store is eager to sell you food. The argument ignores the fact that the things being exchanged have different value to the two parties to the exchange. In the grocery store case, the store values the food less than the money you pay them, while you value the food more than the money you pay them. The exchange is a net gain for both parties. Similarly, if you value the transfer of risk highly enough, buying insurance can be a net gain for you as well as the insurance company. That's really the underlying logic of your statement that you should only buy insurance if you cannot afford to lose the item.
  - lutusp 14y ago
    >> You're missing the point that, on average, insurance benefits the insurance company, not the policy holders. How do we know this? Because insurance companies are eager to sell you a policy. > As a general argument, this is not valid. Consider a parallel argument: on average, selling food benefits the grocery store, not its customers. How do we know this? Because the store is eager to sell you food. You're comparing a tangible purchase with an intangible one. They aren't comparable. It's one thing to walk out of a store with a loaf of bread, but quite another to walk out with a promise to deliver a loaf of bread only if a certain series of events takes place. With insurance, you aren't buying a tangible thing, you're buying risk immunity. Pricing risk immunity is not at all like pricing bread -- there are many more issues. There are any number of people who make the same mistake you're making -- they think of insurance as a straightforward commodity purchase. Insurance companies love this way of thinking -- it keeps people from evaluating the transaction in realistic terms. But insurance is not bread. Insurance is one strategy for managing risk, but it's not the only one. For many people, self-insuring is a much better approach to managing risk. And as an institution becomes larger, the likelihood that they will self-insure also becomes larger, for a simple reason -- it's more cost-effective.
    - pdonis 14y ago

by NateDad 14y ago

lutusp 14y ago

You're missing the point that, on average, insurance benefits the insurance company, not the policy holders. How do we know this? Because insurance companies are eager to sell you a policy. If the policy benefited you on average, insurance companies would go out of business on average. But ... they don't. > The people whose houses don't burn down pay for those whose houses do. Yes, and I don't smoke in bed. Why should I pay for the risky and unhealthy habits of others? But more importantly, I'm better off investing my money against a future loss than handing it over to an insurance company. This is only true if I can afford to lose the insured item, but many people buy insurance without asking themselves this basic question. > What if your house burns down the day after you buy it? This is all about probability, not focusing in on the worst possible case. Insurance companies naturally enough want you to focus in on the worst possible case. But in the long term, and statistically, you're better off self-insuring -- unless a mortgage requires you to carry insurance, or unless you simply cannot afford to lose the insured item.

NateDad 14y ago
Your life is not a statistic. You are not the average. If I gave you $20 to play russian roulette, would you do it? It's only a 1/6 chance of death. On average you'll be up $20, right? I'm guessing most people would not do it. The risk of death is simply not worth the reward. You keep talking about "things you can afford to lose". Houses NEVER fall into that category. So why do you keep bringing it up? We're talking about houses, not the DVD player you buy at Best Buy.
- lutusp 14y ago
  > You keep talking about "things you can afford to lose". Houses NEVER fall into that category. Of course they do. Consider -- do you want to be financially solvent, or own a house? Many people choose being financially solvent. Others walk away from houses whose mortgages are larger than the house's actual value. In both these cases, a house is just another commodity, a choice, not an absolute necessity like breathing. > So why do you keep bringing it up? Because it's true, as I just demonstrated.
pdonis 14y ago
You're missing the point that, on average, insurance benefits the insurance company, not the policy holders. How do we know this? Because insurance companies are eager to sell you a policy. As a general argument, this is not valid. Consider a parallel argument: on average, selling food benefits the grocery store, not its customers. How do we know this? Because the store is eager to sell you food. The argument ignores the fact that the things being exchanged have different value to the two parties to the exchange. In the grocery store case, the store values the food less than the money you pay them, while you value the food more than the money you pay them. The exchange is a net gain for both parties. Similarly, if you value the transfer of risk highly enough, buying insurance can be a net gain for you as well as the insurance company. That's really the underlying logic of your statement that you should only buy insurance if you cannot afford to lose the item.
- lutusp 14y ago
  >> You're missing the point that, on average, insurance benefits the insurance company, not the policy holders. How do we know this? Because insurance companies are eager to sell you a policy. > As a general argument, this is not valid. Consider a parallel argument: on average, selling food benefits the grocery store, not its customers. How do we know this? Because the store is eager to sell you food. You're comparing a tangible purchase with an intangible one. They aren't comparable. It's one thing to walk out of a store with a loaf of bread, but quite another to walk out with a promise to deliver a loaf of bread only if a certain series of events takes place. With insurance, you aren't buying a tangible thing, you're buying risk immunity. Pricing risk immunity is not at all like pricing bread -- there are many more issues. There are any number of people who make the same mistake you're making -- they think of insurance as a straightforward commodity purchase. Insurance companies love this way of thinking -- it keeps people from evaluating the transaction in realistic terms. But insurance is not bread. Insurance is one strategy for managing risk, but it's not the only one. For many people, self-insuring is a much better approach to managing risk. And as an institution becomes larger, the likelihood that they will self-insure also becomes larger, for a simple reason -- it's more cost-effective.
  - pdonis 14y ago