Comment by nomilk
4 days ago
Great advice, especially in the second tab (how to deal with insurers).
I've always considered insurance false-economy and avoided it wherever possible, especially for events with losses <$20k. This is because the value of the three time-costs of insurance (time to find, time to monitor, and time to claim) generally exceed the expected value the claim.
For example, if my flight were cancelled, I might lose $1000. But all the hassle signing up for, monitoring (to ensure conditions don't change significantly in the insurer's favour; often conveyed by an email to a spam folder), and going through a stereotypically labyrinthine claims process is significantly worse than being out of pocket $1000. Or another way to put it, I'd pay $1000 just to avoid having to do all that. Or a third way to put it, if someone offered me $1000 to find them a suitable insurance policy, monitor it to make sure the company didn't spontaneously alter it, and make a claim on their behalf, I wouldn't do it, it's just not worth it.
I get why insurers are like this. If they can sneak you a letter/email(/fax) and on in a foot note on page 43 'notify' you of a reduction in your coverage (for unchanged premiums), they make money. And if they make lodging a claim as onerous as possible, some % of claimants will abandon the claim, making them even more money. So insurance companies are just doing what they're legally allowed to do to make as much money as possible.
Where possible (e.g. for events without enormous payouts [obviously not so helpful in the case of LA fires]) it can be better to DIY insurance, i.e. put a little savings aside for those events (just as one may pay insurance premiums), that way, you actually have it when you need it, unlike insurance payouts from insurers who generally try to make it as difficult as possible to obtain.
> I've always considered insurance false-economy and avoided it wherever possible, especially for events with losses <$20k.
Everything is relative, right? Self insurance is fine if you can afford it. Most people can't wear a $20k hit without potentially ending up homeless or in significant financial distress.
Insurance can actually be a win-win if you keep your money sitting anywhere else other than a literal piggy bank.
Basically, it takes just as much time for your investments to go from 10,000 USD to 50,000 USD as it does for 50,000 USD to go to 250,000 USD. So a setback of 5,000 USD has a disproportionate impact on your future financials the less money you start off with.
In other words, if your total wealth is low enough, the premiums can set you back much less than the expected loss from the insured event, and at the same time make insurance companies a profit.
I'm still learning about this stuff, but here's an article that breaks it down in more detail and more clearly than I have: https://news.ycombinator.com/item?id=26834333
In general it's worth it if a) you can't afford to replace the item in question (and the Kelly criterion gives you a precise definition of 'afford' if you really want to model it out), or b) you think the risk of losing the item is higher than the insurance company does (which is rare outside of cases of outright fraud, but might happen)
Another advantage of insurance is that if your insurer is responsible for the rectification then you benefit from collective bargaining at a time when you may be unable to do so yourself.
For example, if my car breaks down in the middle of nowhere at 3am, I expect I'll end up paying far more for recovery were I self-insured than a breakdown insurer will.
I think the article you linked is flawed because it presents a mathematical solution without taking this into account.
Yeah, I no longer bother with insurance but that which is legally mandated. I honestly wish I didn’t have to insure my vehicles either, as the policies are just hopeless.
For instance, our home flooded to the roofline and our car was washed away to god knows where five years back. Home insurance covers floods - but not floods caused by rivers. Car insurance covers floods - but only if parked on public land, and again excludes rivers.
Two years ago we had a wildfire. Luckily, the houses did not burn, but all of our infrastructure - tanks, solar panels, electrical wiring, etc. - and our truck, did.
Again, our home insurer informed us that they could only provide coverage in the event of total loss. Damage or partial loss, not our problem. The truck insurer informed us that the policy only covers fires which originate within the vehicle.
It’s a grift. Every probable event is excluded in one way or another, and only highly unlikely sets of circumstances remain, like your vehicle spontaneously combusting on a rainy day, or your stone home burning down to the foundations.
> For example, if my flight were cancelled
There has been a flurry of services in the EU that handle these things for you, if you are impacted. It's usually as simple as 1 form + a pic of a boarding pass, wait ~3 months and get ~70% of the money into your account. Exactly as low effort as needed to make it both useful and (one would hope) incentivise the airlines to sort it out in a better way for the client (i.e. rebooking, vouchers, etc).