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Don't buy insurance for things that won't ruin you. The insurer will calculate the risk of whatever happening, and obviously charge more than likelihood * cost

by Nitramp 12y ago

Don't buy insurance for things that won't ruin you. The insurer will calculate the risk of whatever happening, and obviously charge more than likelihood * cost. So unless your risk is higher than average, you're losing money. And keep in mind that the average insurance taker probably has higher risk than the overall population.

eli 12y ago
Even if it won't ruin you, unexpectedly having to shell out over a thousand dollars for a new laptop might be so much of a hassle that it's worth "wasting" a few bucks each month to not have to worry about it.
- tzakrajs 12y ago
  Put those few bucks each month into some interest bearing account and then it can be used for many purposes instead of just a new laptop?
  - snuxoll 12y ago
    $40 a year in a savings account isn't going to net you much.
    - WalterBright 12y ago
      I don't have comprehensive insurance on my car, and the premiums have over time added up to more than its value.
    - singlow 12y ago
      No, but consider all of the things that you might insure - appliances and electronics. Now take the total cost of insuring them and put it in a bank account. In the case that one of them breaks, the savings will likely cover that replacement. Chance are none of them will break. Do the same thing next year. Not only to you make a little interest, you have all of last year's left-over premiums.
      - snuxoll 12y ago
        Almost everything I would want to insure as far as appliances and electronics go are already covered by my renters policy, if you do not have a renters policy go get one, right now, mine is only $10/mo with state farm (including an additional addendum to cover up to $10K in personal electronics). Of course, there's a $500 deductible on that, but the things I expect to happen that would cause me to file a claim on my policy are likely to end up with a lot more damage than that. My laptop and personal assets I carry when I travel are an entirely different story, a $500 deductible if my duplex burned down or an electrical storm fried every device in my house is pretty acceptable, but that's over 1/3 of the value of the things that go into my laptop bag. Considering I've already had a car broken into and only recovered $200 after my $500 renters deductible a personal assets policy would be well worth it to me if it cost $10/mo.
        rictic 12y ago
        Do you expect the insurance company to lose money on your account? Do you expect to beat out the professionals at their game?
        snuxoll 12y ago
        No, I certainly don't, but the cost of insuring a $2000 laptop is more cost effective than saving the equivalent amount, it would take me approximately 20 years to put enough into a savings account to cover its loss if I put the same in as the insurance premium on it. Insurance is there to protect against the unexpected, hopefully I'll never have another laptop stolen again, but it's cheaper to cover the loss with an insurance policy in case it happens again. EDIT: In addition, insurance is designed to spread the risk. If 200 people pay $10/mo to insure their $2000 laptops, and one is stolen every other month, the insurance company still comes out on top.
        rictic 12y ago
        Setting aside catastrophic losses˚ there seem to be roughly two strategies. You can take out insurance on your non-catastrophic items, or you could take the money that you would pay into insurance and instead save / invest it. We should expect the insurance strategy to be a net win iff the insurance company loses money on the account. If it feels otherwise, a combination of the loss aversion and hyperbolic discount rate biases may be at work. On the other hand, it's easy to end up in a financial situation where coming up with $2,000 on short notice is very difficult, and at that point there may be value in using insurance to shift the cost from a random large cost to smaller and more predictable chunks. It's just worth knowing that this is not cheaper. ˚ I'll define catastrophic losses as those things that must be replaced quickly and which cost enough that replacing them out of pocket would be a severe hardship if they're able to at all.
  - deleted 12y ago
    [deleted]
  - eli 12y ago
    Insurance is about pooling and distributing risk. What you describe might be the right move on average. But people live in the world of specifics, not long-term averages. If your new laptop suddenly breaks a few months after purchase and the replacement cost would cause you distress, then the $20 you have saved in an account doesn't help much. By this logic, nobody should buy life insurance because the insurance companies have calculated their premiums so that they come out ahead. At least on average.
    - georgemcbay 12y ago
      "Insurance is about pooling and distributing risk." It is also about making insurance companies fabulously wealthy.
      - eli 12y ago
        Sure, and Tesla is also about making Elon Musk even more fabulously wealthy. I'm fine with that.
    - Nitramp 12y ago
      > By this logic, nobody should buy life insurance because the insurance companies have calculated their premiums so that they come out ahead. At least on average. If you flip the statement, it's "do insure against things that can ruin you". Whether life insurance is worth it depends on what you mean by that exactly. You can insure your untimely death with a benefit for your family, but there are also contracts that are more of a form of investment, and combinations thereof. While arguably once you're dead, you're, well, dead, so you personally might not care that much anymore, your family might. And for them the loss of one of the primary earners of the family is probably ruinous, so it's reasonable to take insurance against that. The investment case is different, it's essentially just an investment contract with associated cost. In that case, you're just buying a service (managing your investment, and to some degree insuring against investment risk). The two forms are commonly mixed together, and then it depends a lot on the structure and cost of the contract. YMMV, but I think over here these contracts have very intransparent cost structures and are commonly more expensive than getting a plain life insurance and a separate investment contract (or investing yourself, for that matter).
matthewmacleod 12y ago
This is awful advice! Losing a smartphone isn't going to ruin me, but it sure would piss me off to have to fork out £500 or whatever because it gets jacked. Similarly, someone could break into my house and clean it out. Not going to ruin me, but I'd rather not have to replace everything. The whole point of insurance is collective risk-spreading. Yes, this means that the majority (by value) of people with insurance will have 'wasted' money, in the sense that they purchase insurance without claiming. But that's not what they're purchasing – they're trading off a small, certain cost for the elimination of a large, uncertain cost. That's a purchase of 'certainty' or 'stability' – and it's what they get. In other words, since you have no reliable way to understand risk and likelihood of a particular event happening, it's not possible to decide if you are at a higher risk than average.
- WalterBright 12y ago
  Over time, you're probably paying 2x or 3x in insurance premiums compared with what the loss would be. Consider also the overall effect if you invested the premiums instead of paying them.
  - YuriNiyazov 12y ago
    This is also nutty. The guy is clearly risk-averse, which means if he did invest he would go for a risk-free rate, which is.... 0.90% right now?
    - jamiepenney 12y ago
      I've had this conversation with friends before. Some people can't see outside their own risk profile.
  - korzun 12y ago
    You can't guarantee 100% expense coverage during random events. Not everybody has thousands of dollars laying around in emergency fund for 12+ months. Committing to an insurance policy is simply a semi-guaranteed safety net. Have tons of cash? You should still probably look at a cheaper plan with a super high deductible.
rconti 12y ago
I generally agree. However: If you are risk pooling with much lower-risk devices and people, then you can still come out ahead. For example, maybe most people buying that kind of coverage are buying it for devices that rarely break or are lost/damaged -- they might be simply insuring against theft while you're using the damage coverage.
- cheepin 12y ago
  Reminds me of this clip from Seinfeld: http://youtu.be/-Jy5R0XjKC8?t=1m30s http://youtu.be/-Jy5R0XjKC8?t=1m30s
Omniusaspirer 12y ago
Except healthcare! You're required to buy it in the US now, but regardless...the hospitals would negotiate with insurance companies to <50% of the bill (and I've seen >90% reduction)- you can't do that as an individual and will generally be stuck with the full price.
- Nitramp 12y ago
  Health cost can very easily ruin you, even if you are quite well off. Even the possibly better prices negotiated by insurances for a serious illness are ruinous, and keep in mind you most likely won't have an income while you're seriously ill. Reduced cost in the US is just icing on top. So everyone definitely needs insurance for healthcare.
  - Omniusaspirer 12y ago
    Ah, I think you misunderstood my point. I was specifically saying that getting health insurance was important- even if you have enough money to cover the cost generally. I mentioned insurance negotiation to emphasis that there were outside factors contributing to making it must-have.

by Nitramp 12y ago

eli 12y ago

Even if it won't ruin you, unexpectedly having to shell out over a thousand dollars for a new laptop might be so much of a hassle that it's worth "wasting" a few bucks each month to not have to worry about it.

tzakrajs 12y ago
Put those few bucks each month into some interest bearing account and then it can be used for many purposes instead of just a new laptop?
- snuxoll 12y ago
  $40 a year in a savings account isn't going to net you much.
  - WalterBright 12y ago
    I don't have comprehensive insurance on my car, and the premiums have over time added up to more than its value.
  - singlow 12y ago
    No, but consider all of the things that you might insure - appliances and electronics. Now take the total cost of insuring them and put it in a bank account. In the case that one of them breaks, the savings will likely cover that replacement. Chance are none of them will break. Do the same thing next year. Not only to you make a little interest, you have all of last year's left-over premiums.
    - snuxoll 12y ago
      Almost everything I would want to insure as far as appliances and electronics go are already covered by my renters policy, if you do not have a renters policy go get one, right now, mine is only $10/mo with state farm (including an additional addendum to cover up to $10K in personal electronics). Of course, there's a $500 deductible on that, but the things I expect to happen that would cause me to file a claim on my policy are likely to end up with a lot more damage than that. My laptop and personal assets I carry when I travel are an entirely different story, a $500 deductible if my duplex burned down or an electrical storm fried every device in my house is pretty acceptable, but that's over 1/3 of the value of the things that go into my laptop bag. Considering I've already had a car broken into and only recovered $200 after my $500 renters deductible a personal assets policy would be well worth it to me if it cost $10/mo.
      - rictic 12y ago
        Do you expect the insurance company to lose money on your account? Do you expect to beat out the professionals at their game?
        snuxoll 12y ago
        No, I certainly don't, but the cost of insuring a $2000 laptop is more cost effective than saving the equivalent amount, it would take me approximately 20 years to put enough into a savings account to cover its loss if I put the same in as the insurance premium on it. Insurance is there to protect against the unexpected, hopefully I'll never have another laptop stolen again, but it's cheaper to cover the loss with an insurance policy in case it happens again. EDIT: In addition, insurance is designed to spread the risk. If 200 people pay $10/mo to insure their $2000 laptops, and one is stolen every other month, the insurance company still comes out on top.
        rictic 12y ago
        Setting aside catastrophic losses˚ there seem to be roughly two strategies. You can take out insurance on your non-catastrophic items, or you could take the money that you would pay into insurance and instead save / invest it. We should expect the insurance strategy to be a net win iff the insurance company loses money on the account. If it feels otherwise, a combination of the loss aversion and hyperbolic discount rate biases may be at work. On the other hand, it's easy to end up in a financial situation where coming up with $2,000 on short notice is very difficult, and at that point there may be value in using insurance to shift the cost from a random large cost to smaller and more predictable chunks. It's just worth knowing that this is not cheaper. ˚ I'll define catastrophic losses as those things that must be replaced quickly and which cost enough that replacing them out of pocket would be a severe hardship if they're able to at all.
- deleted 12y ago
  [deleted]
- eli 12y ago
  Insurance is about pooling and distributing risk. What you describe might be the right move on average. But people live in the world of specifics, not long-term averages. If your new laptop suddenly breaks a few months after purchase and the replacement cost would cause you distress, then the $20 you have saved in an account doesn't help much. By this logic, nobody should buy life insurance because the insurance companies have calculated their premiums so that they come out ahead. At least on average.
  - georgemcbay 12y ago
    "Insurance is about pooling and distributing risk." It is also about making insurance companies fabulously wealthy.
    - eli 12y ago
      Sure, and Tesla is also about making Elon Musk even more fabulously wealthy. I'm fine with that.
  - Nitramp 12y ago
    > By this logic, nobody should buy life insurance because the insurance companies have calculated their premiums so that they come out ahead. At least on average. If you flip the statement, it's "do insure against things that can ruin you". Whether life insurance is worth it depends on what you mean by that exactly. You can insure your untimely death with a benefit for your family, but there are also contracts that are more of a form of investment, and combinations thereof. While arguably once you're dead, you're, well, dead, so you personally might not care that much anymore, your family might. And for them the loss of one of the primary earners of the family is probably ruinous, so it's reasonable to take insurance against that. The investment case is different, it's essentially just an investment contract with associated cost. In that case, you're just buying a service (managing your investment, and to some degree insuring against investment risk). The two forms are commonly mixed together, and then it depends a lot on the structure and cost of the contract. YMMV, but I think over here these contracts have very intransparent cost structures and are commonly more expensive than getting a plain life insurance and a separate investment contract (or investing yourself, for that matter).

matthewmacleod 12y ago

This is awful advice! Losing a smartphone isn't going to ruin me, but it sure would piss me off to have to fork out £500 or whatever because it gets jacked. Similarly, someone could break into my house and clean it out. Not going to ruin me, but I'd rather not have to replace everything. The whole point of insurance is collective risk-spreading. Yes, this means that the majority (by value) of people with insurance will have 'wasted' money, in the sense that they purchase insurance without claiming. But that's not what they're purchasing – they're trading off a small, certain cost for the elimination of a large, uncertain cost. That's a purchase of 'certainty' or 'stability' – and it's what they get. In other words, since you have no reliable way to understand risk and likelihood of a particular event happening, it's not possible to decide if you are at a higher risk than average.

WalterBright 12y ago
Over time, you're probably paying 2x or 3x in insurance premiums compared with what the loss would be. Consider also the overall effect if you invested the premiums instead of paying them.
- YuriNiyazov 12y ago
  This is also nutty. The guy is clearly risk-averse, which means if he did invest he would go for a risk-free rate, which is.... 0.90% right now?
  - jamiepenney 12y ago
    I've had this conversation with friends before. Some people can't see outside their own risk profile.
- korzun 12y ago
  You can't guarantee 100% expense coverage during random events. Not everybody has thousands of dollars laying around in emergency fund for 12+ months. Committing to an insurance policy is simply a semi-guaranteed safety net. Have tons of cash? You should still probably look at a cheaper plan with a super high deductible.

rconti 12y ago

I generally agree. However: If you are risk pooling with much lower-risk devices and people, then you can still come out ahead. For example, maybe most people buying that kind of coverage are buying it for devices that rarely break or are lost/damaged -- they might be simply insuring against theft while you're using the damage coverage.

cheepin 12y ago
Reminds me of this clip from Seinfeld: http://youtu.be/-Jy5R0XjKC8?t=1m30s http://youtu.be/-Jy5R0XjKC8?t=1m30s

Omniusaspirer 12y ago

Except healthcare! You're required to buy it in the US now, but regardless...the hospitals would negotiate with insurance companies to <50% of the bill (and I've seen >90% reduction)- you can't do that as an individual and will generally be stuck with the full price.

Nitramp 12y ago
Health cost can very easily ruin you, even if you are quite well off. Even the possibly better prices negotiated by insurances for a serious illness are ruinous, and keep in mind you most likely won't have an income while you're seriously ill. Reduced cost in the US is just icing on top. So everyone definitely needs insurance for healthcare.
- Omniusaspirer 12y ago
  Ah, I think you misunderstood my point. I was specifically saying that getting health insurance was important- even if you have enough money to cover the cost generally. I mentioned insurance negotiation to emphasis that there were outside factors contributing to making it must-have.