I can't shake this image of someone holding a $5 Starbucks in one hand, paying a $3 insurance premium to cover a less than 1 in 10K chance of losing $500 and complaining that they can't "afford to risk the $500".
Let's see: you just paid $3 to hedge a risk with less than a nickel's worth of -EV and you're holding your daily Starbucks. I'm beginning to understand why you can't afford the risk...
Yes, yes. I know I'd be erecting a strawman if the coffee was central to my argument. I don't think it is; I'm just trying to share my mental frame.
Ah, but this is why insurance works- if you don't have a spare $500, the pain of a $500 payout is greater than $500. That's why, even though the liability multiplied by the probability is less than the premium, it can still make sense.
I have liability-only car insurance (and high limits at that) but not collision/comprehensive, as I can readily write a check for a replacement car. (My car is worth about $5K; my wife's car about $7K.)
I have home insurance as I'm required by my mortgage to have it, but also because losing the house would be lifestyle-changing.
I don't insure risks that wouldn't be lifestyle-changing (unless legally mandated). I'd wager that $650 for a round of drinks isn't lifestyle changing for most golfers.
This insurance makes extended warranty plans for electronics a positively great deal in comparison...
