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Comment by _m8fo | Hacker News Reader

This raises an interesting question: is there a way to perfectly insure yourself? Or rather, a company that you pay to insure you for everything?

My understanding of insurance is that if there's say 1/100 chance of some event costing you 100 dollars, then you might pay $5 at some rate for some period of time to protect you in the case that the event occurs, costing you 100 bucks.

However, if you knew the odds of certain somewhat expected events in your life were, how could you capitalize on that? You could save, but generally people don't make enough for that to be worthwhile.

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Insurance is useful for low-probability high-consequence events, where the payout could be many years of salary.

It's true that in aggregate, insurance buyers lose, but no specific insurance buyer lives in aggregate. Either you have that $500,000 claim, or you don't. The only way to self-insure is to have $500,000 on hand.

>if you knew the odds of certain somewhat expected events in your life were, how could you capitalize on that

If you know that something has a 50% chance of happening across 100,000 people, you write insurance policies such that you can deal with it happening about 50,000 times.

If an event has a 50% chance of happening for you, preparing by saving 25% of its cost isn't going to help much. Expected value calculations don't make sense for N=1.

(If you look at loss ratios in the insurance industry -- payouts and claim expenses over premiums collected -- it is closer to ~$1.20 in most fields, and coming down over time. Yay capitalism!)

(You must mean premiums collected divided by payouts and claim expenses. Otherwise, if the inverse ratio were 1.20, that would imply that insurance companies were losing money.)

Inverse of loss ratio answers the question "Would I pay $5 to purchase $1 of claims with an expected value of $1?" No; you'd pay far closer to $1.20.

Insurances have an inherent overhead cost for administration. Thus you should only insure things/people that loosing would be catastrophic financially for you.

> but generally people don't make enough for that to be worthwhile.

Yes you do.

But it doesn't have to be a zero sum game anyway. Both you and the insurer could be better off.

Life insurance is a dumb idea. But if you're human then sometimes dumb ideas stress you out. So to pay to lower that stress might be worthwhile.

But it's complicated. If you have a fire in your house sure it'd be nice to be insured.

But OMG you house just burned to the ground, you might have died, what if it happened at night, something way worst might have happened.

Your energy is better spent on fire proofing your house. You should never plan for events where you might die, you should reduce the risk of dying. If you really think theres a chance you house might burn down, perhaps you should move houses. That is more logical but less human.

The problem is that even if you fireproof your house, your house can still burn down. It makes more sense to fireproof your house AND have homeowner's insurance. You can't lower your risk of negative events to zero, but even so, that's not the point of insurance. The point is to have a safety net should some improbable event happen. I don't care how fireproof you make your house, it could still burn down, and you don't want to be without insurance when it does.

> Life insurance is a dumb idea.

Not if your beneficiaries depend on you for support that you can no longer provide if you're dead, and if you care about what happens to them.

That is correct, but disability insurance is far more important than life insurance.

If you die, your spouse can marry again, your kids will be able to work at some point and so on, there are no additional costs. If you're disabled, it becomes a massive, long-term, cost burden.

You obviously have no concept of marriage or the cost of an education for your kids. Life insurance is there to make sure your families life isn't utterly ruined. Your suggestion is to leave the spouse forced to marry someone rich fast and have the kids work at McDonalds.

Did you even read my post?

Please, compare the costs of:

* Widow(er) raising two kids

With:

* Married couple raising two kids, while one of the adults has a severe permanent disability, requiring constant care, huge medical bills, etc.

Do you understand now why disability insurance is more important than life insurance?

I am not disagreeing with the importance of disability insurance. I am disagreeing with your proposed solution to not having life insurance.

Remarrying rich and the kids eventually getting jobs is not a plan I would be ok with.

And where exactly did I propose not having life insurance? Would you mind copying and pasting the text here?

If you have to choose between disability and life insurance, go with disability insurance. If you have enough money to pay for both, pay for a lot of disability insurance and some life insurance. Probably 10-20 times more disability than life.

Stop arguing the importance of disability insurance. You sound like a parrot. Nobody is disagreeing.

You explained your suggested alternative to life insurance. Really don't think I need to copy paste that to you. Try the parent button.

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