Insurance is the opposite of a lottery. If you think buying lottery tickets are a waste of money because you lose out in the long run, the same argument should lead you to think having insurance is a good thing.
If you have extraordinary "good luck", you may come out ahead in the lottery. And if you have extraordinary "bad luck" you may come out ahead in insurance.
Insurance of course has a more practical value, and a much better return on investment (even if it averages negative returns)
the decision of purchasing insurance or not depends more on how many resources or alternatives you have, and if you can easily smooth over an uninsured bad event so that it doesn't wipe you out. for individuals with limited resources who will be wiped out if uninsured, it is very rational to buy insurance, including paying a profit margin to the insurer on top.
another way of thinking about insurance is a way for groups of people to pool and share risk -- if they don't get hit by correlated bad luck then they all get to smooth out their bad outcomes.
Usually, individuals with limited resources can't really be wiped out: there is not much to wipe out.
Here is my perspective: I consider myself typical individual with limited resources: I'm mostly live on the my salary (Software dev), I don't really have major assets (20k car bought for cash, renting a house), have some savings (~30k cash). And I only have minimal car liability insurance, as required by law.
So, what kind of "wipe out" event can happen to me / my family? And what kind of insurance do I need to get for that?
Let's say I have auto accident and I'm liable for million dollars. The likelihood of such event is low. Such event probably would result in bankruptcy, but it's not much worse, then constantly paying extra for insurance. So, there is "no wiping out" in this seemingly catastrophic event.
So, what I'm saying is "individuals with limited resources" often doesn't have much to wipe out, so they don't have to worry about insurance.
I find that ironic, because we actually have medical insurance and unemployment insurance here in USA, but we often see "individuals with limited resources" wiped out for reasons you mentioned.
Consider the same accident and you fracture your spine, leaving you paralyzed neck down. Insurance (at least in the US) affords you access to medical care, and access to follow up therapy and other resources to (hopefully) recover completely.
If you have limited resources and no insurance, the consequences are a lot worse than bankruptcy.
Only if you put zero value on the peace of mind that comes with having insurance against risks that, if they happened, would bankrupt you. But if you put zero value on that, you wouldn't buy insurance.
Only a fraction of the consumers come out ahead if we only consider monetary value. But the whole reason insurance and the lottery exist in the first place is that there are other kinds of value besides monetary value. In the case of insurance, it's peace of mind. In the case of the lottery, it's whatever entertainment value comes from being able to visualize yourself winning, even if your chances of actually doing so are tiny.
Only if you put zero value into seeing your savings go up with the amount you saved on insurance.
If you're interested in equality and justice, you should be in favor of insurance (and insurance-like government schemes like social security) and against lotteries.
On the other hand, the good thing about lotteries is that they can be used to raise money for a good cause with entirely voluntary contributions, and even for most people who don't win, it can still be considered pretty cheap entertainment.
I don't (generally) play the lottery, and I don't (generally) participate in involuntary insurance schemes.
I don't buy pet insurance, I don't buy extended warranties; I generally try to avoid paying a third party's payroll, G&A, real estate, taxes, and profits, all on top of the actual expenses I incur that they (hopefully) pay for, after much paperwork.
That said, I sure don't carry the bare minimums in auto or health or homeowners insurance because I cannot afford a multi-hundred-thousand-dollar unexpected expense.
Right, which demonstrates that the expected value of insurance can be positive in terms of utility even if it's negative in dollars. For most individuals, a $100k loss is more than 100 times as bad as a $1020 premium. Meanwhile the insurance provider can absorb individual losses and still come out ahead overall.
If the loss from not having insurance is bearable, you're better off not buying the insurance. If it's not, it's worth the money even if you'd lose out on average. That's why phone or car insurance (collision and comprehensive) is a waste of money for the average person, but health or homeowners insurance isn't.
Oh, yeah, and then there's legal requirements that you have car insurance. So no, I don't buy the idea that car insurance is a waste of money.
Phone insurance? There I agree with you.
(If there's an outstanding loan on the car, the lender requires collision and comprehensive to cover their asset. Something to consider when financing a car - it's not just the car payment, but also the additional insurance you have to carry)
Used cars usually are not "tens of thousands of dollars". If one can't afford even a few thousand dollars in a pinch to buy a used car to replace one's current ride, then one probably needs collision and comprehensive too.
Why it is "unbearable loss"?
There is saying about that:
If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem.
That may seems unethical, but if you think about it - it's reach people, who lives in our society, who needs to be careful to take care of their risks.
Of course, if you have assets to lose - you need to protect them (by buying insurance), but if you are "individual with limited resources" - it's not much different with / without insurance.
What I often hear is that poor people (with limited resources) needs to buy extra insurance to protect reach people from their risks. I disagree.
You have a good point though that if you have essentially no assets to go after liability insurance isn't worth much to you. This is why it is mandated for auto insurance (and why many places have underinsured motorist insurance, also)
It is akin to loans essentially - the one taking them may be giving profits to others but that doesn't mean it isn't cost effective.
But for the few who don't lose, it's worth it. That applies to both insurance and the lottery.
The difference, as has already been pointed out, is that insurance prevents a bad scenario, whereas the lottery sometimes results in a good scenario.