Most people do, but people have some strange ideas sometimes. Consider democracy – especially overseas. So, prompted by a discussion with my son last night, here is 'why insure?' in a simplified form, based on car insurance, because he's learning to drive:
- Because you care. To paraphrase the Buddhists, heavily: if you didn't give a damn, you wouldn't be bothered either way. But because you do care, you are worried how things will turn out, for you, and for the people around you. Even for strangers you might bump into – literally – while driving. You do not want to be that guy who didn't give a damn.
- Because you can't entirely avoid the risk: You would like to know you are never going to have a crash. Someday, someone, will make it so that you never have crashes, but until then crashes will be rare. Rare and probably expensive. While you cannot be sure you won't ever have a crash, we need to think about how to cope when you do have a crash. We can manage and mitigate the risks (start learning to drive early, do defensive driving courses, drive safer cars – and sadly, not motorbikes…) but we still have some risk to deal with.
- Because you can't entirely self-insure: the average crash might 'only' cost a couple of thousand dollars, but that is still more than my son has spare lying around. Then again, what if he crashes in a Ferrari? He doesn't want to wait until he has hundreds of thousands in the bank before he drives. He's going to want to drive to work, and run errands, take people out. If only there was another way…
- You can transfer financial risk: through the magic of insurance, some companies will average out no-crash, small crash, and nasty expensive crash across all their policyholders that year. Cool huh.
The cost is modest, in comparison to the risk. But you can make it lower. How do you make it lower? Revisit the first three points. You can care less – buy really limited cover, for example, from a company with bad service. You can try harder to avoid the risk: in the long run you have a better driving record you can get cheaper premiums. Or check out one of those insurers that monitor your driving behaviour. Or not, you choose. Or you can self-insure more: save up an emergency fund, take a bigger excess. Keep going through the four steps until you have an answer you are happy with.