Sure, in aggregate, across all homeowners, they pay out less then they take in. But that doesn’t make it a scam. They can pay out more for a specific homeowner than they take in.
On average, you will be worse off if you buy insurance than if you don’t. The odds are against the buyer with insurance.
However, if you have a utility function that isn’t linear in the amount of money you have, it can be advantageous to get insurance. Say you don’t care that much about having the small amount of extra money you’d have if you avoided insurance, but you care very, very much about losing the value of your house at one go. Insurance will mitigate that risk.
If you have enough reasonably-liquid assets that you can afford to just replace your house with cash, you might want to not get insurance. But even in that case, you’d need to hold assets in a liquid form, which places constraints on those assets. Let’s say that the average number of houses that burns down in a state per year is 100. You could have every homeowner ensure that they have enough liquid assets to replace their house. But it’d be cheaper to have an insurer hold, say, 500 times the cost of a house in liquid assets. They couldn’t cover the situation where all the houses burn down, and this is why insurers typically don’t offer coverage for correlated risk scenarios, where all houses might be impacted, as in war. But for things like fires, it’d be extraordinarily unlikely for more than five times the normal amount to burn down, so having an insurer involved relaxes constraints on how assets are held and how much need to be held.
NPR Planet Money did a bit on correlated risk in homeowner’s insurance a while back.
Meh, most insurance does what it says on the tin, just read your policies carefully before you sign. Car insurance has absolutely saved my financial ass twice and life insurance has protected numerous families financially after the death of a loved one
Health insurance is a bunch of bullshit though because it shouldn’t exist at all and the words Healthcare industry should have never been brought together.
That’s what I mean. We pay so much in taxes that everything should be taken care of for us. We have been deceived into thinking that we can’t possibly pay for all of this. Money is nothing to the US government.
Don’t know why they think their anecdotal experience means homeowners insurance isn’t a scam. Ask those homeowners in Staten island after hurricane sandy how great their insurance was
Well, insurance itself isn’t a scam. There are just a lot of shitty insurance companies who have found a way to profit by not actually following through. Conceptually, it makes sense. But it shouldn’t be a profit driven business.
Conceptually, it makes sense. But it shouldn’t be a profit driven business.
You’re not required to use a profit driven insurance company (for things like home, life). You can choose to use Mutual Insurance company.
What are mutual insurance companies?
“An insurance company owned by its policyholders is a mutual insurance company. A mutual insurance company provides insurance coverage to its members and policyholders at or near cost. Any profits from premiums and investments are distributed to its members via dividends or a reduction in premiums.”
Some of the big name companies are mutual insurance companies.
Comparing “routine” claims, like your house burning down to random chance, to a disaster zone affecting hundreds of homes all at the same time is comparing apples to oranges.
Realistically, it should be the government taking care of claims in this situation for freak disasters and covering for people to relocate if the area is deteriorating and expected to have more and more disasters due to things like climate change.
ALL insurance is a scam. They are ALL the same. Insurance companies do nothing but pay less than what has been given. That’s how they make money.
Sure, in aggregate, across all homeowners, they pay out less then they take in. But that doesn’t make it a scam. They can pay out more for a specific homeowner than they take in.
On average, you will be worse off if you buy insurance than if you don’t. The odds are against the buyer with insurance.
However, if you have a utility function that isn’t linear in the amount of money you have, it can be advantageous to get insurance. Say you don’t care that much about having the small amount of extra money you’d have if you avoided insurance, but you care very, very much about losing the value of your house at one go. Insurance will mitigate that risk.
If you have enough reasonably-liquid assets that you can afford to just replace your house with cash, you might want to not get insurance. But even in that case, you’d need to hold assets in a liquid form, which places constraints on those assets. Let’s say that the average number of houses that burns down in a state per year is 100. You could have every homeowner ensure that they have enough liquid assets to replace their house. But it’d be cheaper to have an insurer hold, say, 500 times the cost of a house in liquid assets. They couldn’t cover the situation where all the houses burn down, and this is why insurers typically don’t offer coverage for correlated risk scenarios, where all houses might be impacted, as in war. But for things like fires, it’d be extraordinarily unlikely for more than five times the normal amount to burn down, so having an insurer involved relaxes constraints on how assets are held and how much need to be held.
NPR Planet Money did a bit on correlated risk in homeowner’s insurance a while back.
https://www.npr.org/transcripts/349650496
Exactly. Insurance handles low-probability high-impact uncorrelated disasters really nicely, and is worth paying for to protect against those.
Correlated disasters require public policy and shared infrastructure to lower their risk and the extent to which people are exposed to them.
Meh, most insurance does what it says on the tin, just read your policies carefully before you sign. Car insurance has absolutely saved my financial ass twice and life insurance has protected numerous families financially after the death of a loved one
Health insurance is a bunch of bullshit though because it shouldn’t exist at all and the words Healthcare industry should have never been brought together.
That’s what I mean. We pay so much in taxes that everything should be taken care of for us. We have been deceived into thinking that we can’t possibly pay for all of this. Money is nothing to the US government.
Don’t know why they think their anecdotal experience means homeowners insurance isn’t a scam. Ask those homeowners in Staten island after hurricane sandy how great their insurance was
Well, insurance itself isn’t a scam. There are just a lot of shitty insurance companies who have found a way to profit by not actually following through. Conceptually, it makes sense. But it shouldn’t be a profit driven business.
You’re not required to use a profit driven insurance company (for things like home, life). You can choose to use Mutual Insurance company.
What are mutual insurance companies?
“An insurance company owned by its policyholders is a mutual insurance company. A mutual insurance company provides insurance coverage to its members and policyholders at or near cost. Any profits from premiums and investments are distributed to its members via dividends or a reduction in premiums.”
Some of the big name companies are mutual insurance companies.
Comparing “routine” claims, like your house burning down to random chance, to a disaster zone affecting hundreds of homes all at the same time is comparing apples to oranges.
Realistically, it should be the government taking care of claims in this situation for freak disasters and covering for people to relocate if the area is deteriorating and expected to have more and more disasters due to things like climate change.