::  Posts  ::  RSS  ::  ◂◂RSS  ::  Contact

When to Buy Insurance?

March 11th, 2015
insurance

You can get insurance for cars, phones, vacations, health, houses, ... —pretty much anything that can accidentally fail you. When is it a rip-off and when is it worth it?

The big thing to keep in mind about insurance is that the insurance company makes money by charging people more than they pay out. If the chance of your house burning down is 0.1%/year then to get insurance to pay out the value of your house if this happens you should expect to pay a bit more than 0.1% of the value of your house every year. Insurance, considered strictly on expected value terms, is a losing bet. So when should you go ahead and buy it anyway? Where does this simple theory fail to apply?

That's a lot of exceptions! Does the simple "don't buy insurance for things you could afford to replace" rule ever apply? Yes! Consider vacation insurance: if you have to cancel your vacation because of a hurricane you'll get your money back but not your vacation, plus you'll have the hassle of documenting things and convincing the insurance company to pay. Or portable electronics: insurance prices are high because mostly the most accident prone people buy, and the price only looks attractively low because it covers less than you think. When the exceptions above don't apply, saving the money is generally a much better investment than buying insurance.

Comment via: google plus, facebook

More Posts:

Older Post:

Newer Post:


  ::  Posts  ::  RSS  ::  ◂◂RSS  ::  Contact