This is silly as a rule, IMHO. I could pay out for all new stuff if there was a fire, but it's a damn site cheaper to pay a few hundred a year for insurance.
The point of insurance isn't that they pay out an individual less than they take in, but the group in aggregate.
Assuming you have no extra information that gives you an edge over the insurance company, insurance is only beneficial for a loss which you cannot afford. Otherwise you’re basically paying someone else to invest your money when you can do it for 3 basis points at Vanguard/Fidelity/Schwab.
This is also why whole life insurance is a waste of money, ignoring any tax advantages which don’t apply to most people.
Edit: This is also why states allow people with sufficient funds to self insure their vehicle. If you have a couple million liquid assets, you don’t need to pay someone else to pay for your lawyers and and healthcare costs, you can just do it yourself.
I guess the reason why US allows it is because the society is so litigious - if you have that amount of money to self insure you also have enough money to fight pretty much any claim against you.
Or one crash where you injure someone so bad that they cannot work anymore for the rest of their life, maybe need specialized support and so on. The damages in property are usually the least important part of a car crash.
https://slate.com/news-and-politics/2015/09/why-drivers-in-c...
Or injure a single person to an extent that requires lifelong fulltime medical care.
Literally, I could be responsible for an accident that totals a 15 year old car and gives the driver an ambulance ride and a couple day hospital stay and have my compulsory insurance not be enough to cover the entire liability.
Of course, nearly everyone carries a substantial (10-50x) multiple of the compulsory minimums in auto-specific liability policies, and if you have any amount of wealth accumulated, it's common to have an additional umbrella policy.
[0]-https://usinsuranceagents.com/massachusetts-car-insurance-re...
As an individual, if there is a catastrophic fire a few years into a policy, I am down tens of thousands, having paid out a few hundred in premiums.
Example - The average UK home contains £35K of stuff. The average annual contents insurance premium is £139. You've been paying for ten years and "Oh no! A fire destroyed all my stuff". You're better off by £33600. In aggregate the insurer makes money, but they don't necessarily make money from every individual. This is where the model makes sense for the buyer and the seller.
$4200 is noise to someone like this. Meanwhile, if you do suffer a loss, you will be down far more.
Unless that fire spreads to someone else's property or kills/seriously injures someone, in which case you'll wish you had insurance.
That's....insane. Fires happen. Theft happens. Thunderstorms happen. Kids breaking things happen. Yes I can "afford" to replace most things in my house - but why would I risk all of my savings if I can pay ~20 quid a month and not worry about it??
Take an extremely poor insurance bet as an example. The electronics store will offer you an extended warranty plan on your new TV. An LG 55" LED TV (UK6090PUA) is $400 right now at BestBuy. 2 years of "protection plan" on that TV is $50. Do you think that anywhere near 1 in 8 TVs need any kind of service in 2 years, let alone something that would require the replacement of the TV? Sure, there are people who pay $450 for their TV instead of $400 and come out ahead. The vast majority don't and most people can easily shoulder the burden of buying a new TV when their current one breaks. (By the way, that insurance policy allows the insurer, at their sole discretion, to pay you the market value of your TV rather than repair/replace it.)
I self-insure against collision on our cars (meaning I dropped collision coverage). Collision insurance (covering repairing/replacing of our cars) was running around $1000 per year for 2 drivers and 3 cars. In 20 years, between insurance savings and investing the savings, I've banked about $40K by not carrying collision. Not only could I cover a collision now, I could buy 3 replacement cars outright and have money left over and don't have to deal with any insurance paperwork to do so...
I do carry liability insurance (at high limits) for auto. I have our home insured. I have a high-deductible medical insurance plan. I'm not anti-insurance in general; I am anti-insurance for losses that can be easily weathered.
Getting a new TV is the kind of thing most people on HN would barely think twice about. At which point the cost benifit simple. But, move up a few rungs to say a 5,000$ massage chair and you could replace it or do without but most people would feel it. Further, the policy is likely to be closer to 1/20th the price at something like 250$.
It’s still a bad deal, but you can feel better about your overall purchase knowing it will last at least X years.
The other aspect is the need to replace. You can live without a TV while you build up savings, you can live without a solid oak table, but you can't live without a vehicle to get to work, or a home to live in.
Let’s say it’s going to last ~5 years on average then that’s a little under 20$ per week you can set aside for the next one. For something used regularly providing 20$ a week in value is a minimal hurdle, but that does not mean they can drop the full cost on a whim. Making the extended warranty a more understandable choice.
Worst case, my insurance company drops me and I have to scramble to find another company since lapses in coverage lead to all sorts of issues.
Still, I'm not buying the store's insurance on a TV. I might buy it on my teenager's phone or laptop depending on price and coverage.
Those events likelyhood, the cost of them, and what the insurance will actually pay you back are probably way off what you think it is in your mind.
Now I do think insurance is important for catastrophic events: low likelyhood, but incredible cost, because you can't take this chance at the scale of an entire society.
But for theft or kids breaking things, I'm not so sure.
You can take the same money, and invest it in the index fund, and if and when you need it, sell your assets to pay for the loss. But you get to avoid paying the insurance company's employees.
You wouldn't buy insurance for the bag of rice you buy at a grocery store in case you drop it outdoors, the bag splits open and the rice is ruined. Why? Because you can easily afford buying another bag of rice.
The same reasoning applies to a car. If you have sufficient savings, you can buy yourself a new car if and when you need to. Until then, just invest the savings and reap the investment rewards, exactly like the insurance company will be doing.
But suppose you can afford to buy a new car (like many higher income professionals in the US), but you can't afford to pay for someone else's $500k to $1M medical bills (like almost everyone). Then you would forego the collision insurance for the vehicle, but still purchase the bodily injury liability and personal injury protection insurance.
> The same reasoning applies to a car. If you have sufficient savings, you can buy yourself a new car if and when you need to. Until then, just invest the savings and reap the investment rewards, exactly like the insurance company will be doing.
But it's not the same reasoning. I can afford to buy hundreds of bags of rice every month if I need to, without stretching my budget significantly. Rice for me is pocket change, so yes insurance would make no sense.
For the vast majority of people, a car is not pocket change. Sure high income people might be able to buy another and not go bankrupt, but there's a big difference between being able to afford something, and considering the expense pocket change.
If you can't afford to replace it, then you purchase insurance for it.
Replace "it" with whatever you want. Just because a car is not pocket change, doesn't mean you can't afford to easily replace it. And maybe if you feel that it will cause you stress or stretch you thin, then it doesn't fit the definition of "afford to replace it". Auto insurance company has way more data than you do on how likely it is that they will need to replace your car, so they will charge you appropriately, plus their salaries. So if you have a sufficient emergency fund, then you don't need the insurance, just like you don't need it for the bag of rice.
$1500 auto insurance / yr x 60 yrs of driving is less than the cost of a single catostrophic wreck, even if no one dies.
My state used to allow drivers to self-insure (I think they removed the option for individuals recently). I was a really bad deal though, since you had to give the state a minimum $50,000 deposit interest free. It's cheaper to just pay for insurance and earn the returns on your cash.
The other point: I think most people here are concerned with the insurance paying up once the real deal happen. Most of the time the insurance will: 1. take a lengthy legal path to exhaust you 2. pull some article that you didn't notice from the contract to get away with it.
So you are screwed twice. ouch.
I'm not claiming insurances are a scam and you should avoid them. I'm using them. But I can understand why some people are frustrated.
In the long run, all things being equal, it's cheaper to never insure and instead pay out of pocket for your losses.
I'd only insure for truly financially ruinous scenarios. Not for material goods or airfare, etc.
Only in aggregate, not necessarily for any given individual.