Thanks for this! It applies to a lot of different kinds of insurance. Car insurance, for instance, isn’t financially great (except liability umbrella in many cases), but having the insurance company set standards and negotiate with the other driver (or THEIR insurance company) is much simpler than having to do it yourself, potentially in court.
For some kinds of insurance, there’s also tax treatment advantages. Because it’s usually framed as responsible risk reduction (and because insurance bundles some lobbying into the fees), premiums are sometimes untaxed, and payouts are almost always untaxed. This part only affects the financial considerations, but can be significant.
Yes, insurance for your own car’s value is usually not great—it’s bounded and in most cases cars are relatively easily replaceable with something functionally almost as good for relatively low capital expense.
Insurance for liability to third parties is worthwhile for almost everyone, since the scale of damages in the upper tail exceeds almost everyone’s accessible wealth.
since the scale of damages in the upper tail exceeds almost everyone’s accessible wealth
Car insurance is [edit: in the US] bounded: a standard policy will cover you up to some cap (ex: $50k). I think maybe your comment is a better argument for umbrella insurance, though that is also not infinite.
Ah I see, it appears to be local differences. Standard third party car insurance here (in Australia) typically covers up to $20 million. It isn’t infinite, but it does remove almost all of the financial tail risks for almost everyone.
Thanks for this! It applies to a lot of different kinds of insurance. Car insurance, for instance, isn’t financially great (except liability umbrella in many cases), but having the insurance company set standards and negotiate with the other driver (or THEIR insurance company) is much simpler than having to do it yourself, potentially in court.
For some kinds of insurance, there’s also tax treatment advantages. Because it’s usually framed as responsible risk reduction (and because insurance bundles some lobbying into the fees), premiums are sometimes untaxed, and payouts are almost always untaxed. This part only affects the financial considerations, but can be significant.
Yes, insurance for your own car’s value is usually not great—it’s bounded and in most cases cars are relatively easily replaceable with something functionally almost as good for relatively low capital expense.
Insurance for liability to third parties is worthwhile for almost everyone, since the scale of damages in the upper tail exceeds almost everyone’s accessible wealth.
Car insurance is [edit: in the US] bounded: a standard policy will cover you up to some cap (ex: $50k). I think maybe your comment is a better argument for umbrella insurance, though that is also not infinite.
Ah I see, it appears to be local differences. Standard third party car insurance here (in Australia) typically covers up to $20 million. It isn’t infinite, but it does remove almost all of the financial tail risks for almost everyone.
Sorry for assuming you were also in the US!