For insurance company to be profitable the premiums it collects from customers should cover all claim payouts plus marketing and administrative expenses. So total of claim payouts must be less then collected premiums. That means expected return on buying insurance is negative. So does it mean it's better to avoid buying insurance where possible? Assuming you have enough savings to cover the loss if it happens.
1. most people are risk averse (not risk neutral) 2. utility is not a linear function of net worth (typically closer to logarithmic)
Insurance isn't about expected returns for individuals, it's about minimizing risk.
Depends on the type of insurance for small things that aren't a big deal to pay for you shouldn't get insurance (e.g., dental, electronics...) for things like your car and house it's usually a good idea to have insurance. Even if you could afford to get a new one without insurance it will be really expensive and frustrating, so it's probably better for your mental health to insure these big things so you dont have to worry.
Not really. You have to account that risk of loss is not uniform across the population and that insurance costs get spread. So if your probability of loss is much lower than general population then you could avoid buying insurance. You also have to quantify the loss. If you lose $1M even if you pay $500/month insurance for your whole life (concrete example is home insurance against natural events such as earthquakes, wildfires, hurricanes) you will be better off paying
Risk if loss is not uniform but insurance company takes it into account when calculating your premiums.
Sort of but it is not really proportional. Somebody driving recklessly and having 10 times higher prob or crashing does not pay 10 times the insurance price. You, and many other, safe driver pay the rest.
I bought a 30$ rental insurance and just smacked the car in a cherry picking lot while backing out . Insurance saved my ass. Otherwise I should have paid a hefty bill of around 8000$ as it was a premium SUV. So imo insurance is really important . We don’t know when we might have a risk . I in fact bought the 30$ insurance out of negligence and it intact helped me . Ignorance is bliss
FYI, a lot of typical car insurance plans will cover your rental cars. Of course you can opt out of that option too
Yes personal car insurance covers it , but also increases your premium after such comprehension claim . With rental insurance , there is no future premium impact
I can't afford a Tesla but I sure can run into one! So I have good insurance coverage!
Yes I think it’s financially better to self-insure when and where you can. You buy insurance when you can’t handle a risk yourself. You know what the cost is to replace a car so if you can handle that cost then why pay someone else to insure that risk? I suppose an alternate viewpoint is paying a premium for peace of mind. You’ll have someone telling you what to do and where to go, if you get into that scenario. Some insurance like health and auto liability are different in my mind because your risk is virtually unlimited and can’t be as easily calculated as the cost of a car.
Very good observation . In summary , for assets with fixed price tags and easily manageable , better to self insure. For assets with unknown risk, aka health and liabilities , go for insurance
Tech Industry
Yesterday
2183
TESLA UP 14% AFTER HOURS 🎉🎉🎉🎉
AMA
Yesterday
1493
I’m a professional coaster AMA
Tech Industry
Yesterday
2942
ByteDance is officially fucked
Ask Blinders
Yesterday
876
Tipping culture is really getting out of control! Waiter gave me ‘a look’ because I tipped her 10% for ‘BAD service!’
Tech Industry
Yesterday
838
The new Tesla Model 3 P goes from 0-60 in 2.9 seconds
Individually, no. At scale, yes.
Why no individually? E.g. consider having full coverage for your car vs minimum required. For most people here losing their car won't financially impact them that much. So it's better to go with minimum coverage and just buy a new car if accident happens. No?