Having insurance is gambling, but not having insurance is also gambling. This is because life itself is a gamble. We don't know what the future holds and we have the choice to insure or gamble on just about any aspect of our lives.
Insurance companies are just like casinos in that the math always favours them if you look at a sufficiently large sample size. Even so, some things are still worth insuring. e.g. Your house. Most people do not have enough assets saved up to replace their house should it burn down. Even though your house will likely not burn down, protecting yourself against the loss of something you can't easily afford to replace is worth spending money on.
Does it make sense to insure things you can replace though? Consider the "Instant product replacement" plans that stores constantly try to sell you. If your monitor dies you can easily absorb the cost of buying a new one. If, instead of buying IPR's on everything, you set aside a similar amount of money, you'll likely soon come out far ahead. Even if you don't, you'll still be able to afford it. Buying IPR's means, on average, you lose money. Not buying IPR's means, on average, you'll save money. The choice is easy.
Insure the big, vital things you can't afford to replace. Treat insuring small things as gambling without the fun.
>>Having insurance is gambling, but not having insurance is also gambling. This is because life itself is a gamble. We don't know what the future holds and we have the choice to insure or gamble on just about any aspect of our lives.
You could say insurance is an attempt to stop the fortune to gamble against you for a specific case (like flooding your house). You are already the party in a gamble and insurance is a way out.
Only thing I insure is umbrellas. They never last more than 2-3 years and a 7 year replacement plan for like 8.99 is a reasonable deal. Anything else I tend to just go with credit card purchase protection and MFR warranty.
What credit cards offer protection these days? All of mine seem to have done away with it. For umbrellas, I bought a Tumi, which is insanely expensive (was $40 when I got it; I think it's closer to $60 now), but which has a lifetime warranty.
> I've been driving for 36 years now and have never had a tired damaged more than the very occasional puncture.
I typically go through a tire a year. The city I live in (Seattle) will pay to replace the tire if the loss was due to a pot hole, but you have to take a picture of the pot hole, which can be a bit hard to do in many circumstances.
There have been years where I've paid more for tires than for gas. :/
Back in the dark ages, the University I worked for had a lab full of computers stolen. I discovered that the University did not have insurance for this, or for a lot of things, because the University was a large organization with a lot of assets and could easily absorb the cost of theft. I'll assume they got the risk analysis right, since they wrote the textbooks on that sort of thing.
The math changes though if you are dealing with a non-profit insurance system. For example, becoming a member of a well designed co-op, or a genuine non-profit insurance company (one that returns excess to members rather than pay bonuses to executives). But still there are problems, since not every member brings the same amount of risk, so you get a good deal if you know you are higher risk than the insurance company believes and vice versa.
I think this profit-vs-non-profit thinking is reductionist. A non-profit insurer still has expenses. They have to pay their staff, rent offices, pay vendors, and so on. In fact, nothing stops them from spending more than a for-profit corporation would.
Anyway, the math doesn't change: the insured still pay more than they are getting back.
What about the gamble that the whole thing is a scam from the beginning? If they are going to fight tooth and nail to never payout anyway its all insanity.
Also how could insurance ever be a "for profit" business? That could never work. Profit means straight up planning scam right from the beginning, hoping that a big enough payout triggers business failure and you dont have to pay out anyone, yippee free and clear rug pull
I am sure your life experience shapes that opinion but it is far from the truth. I don’t think these business ever hope for a total loss. It would make no sense.
I also don’t think a nonprofit or government can do an adequate job of offering insurance. Let’s ignore health insurance but rather define insurance in the base form as an entity paying out if an event happens.
In a for profit model you have multiple agents each evaluating risk and the costs to cover that risk. Ideally enough agents exist that they compete to keep costs low. Certainly sometimes this is not always true.
>Also how could insurance ever be a "for profit" business?
What? They plan to take in more in premiums than they pay out in claims by managing risks and underwriting.
In that sense it's like a bookmaker who plans to set a line on a game that results in bets not having an imbalance that outweighs their vigorish. In cases where they do they lay off bets on other bookmakers. It's why they tend to be concentrated on certain areas and the same is true for insurance.
Both of those are legitimate for profit businesses that use statistical modeling and risk management to turn profits and provide value to customers.
More gambling! What I find interesting about this question is that insurance companies are the real gamblers. Attempting to frame their clientele as gamblers approaches absurdities such as a limited opportunity to spend, and most importantly, a strict cap on "reward" lower than the cost to "play" (entry fee for a new car is the policy rate plus a car of equal or greater value).
Whereas insurance companies are gambling on both ends: with their customers' potential losses and with their float on the investment market.
Insurance companies are just like casinos in that the math always favours them if you look at a sufficiently large sample size. Even so, some things are still worth insuring. e.g. Your house. Most people do not have enough assets saved up to replace their house should it burn down. Even though your house will likely not burn down, protecting yourself against the loss of something you can't easily afford to replace is worth spending money on.
Does it make sense to insure things you can replace though? Consider the "Instant product replacement" plans that stores constantly try to sell you. If your monitor dies you can easily absorb the cost of buying a new one. If, instead of buying IPR's on everything, you set aside a similar amount of money, you'll likely soon come out far ahead. Even if you don't, you'll still be able to afford it. Buying IPR's means, on average, you lose money. Not buying IPR's means, on average, you'll save money. The choice is easy.
Insure the big, vital things you can't afford to replace. Treat insuring small things as gambling without the fun.