Perhaps some life insurance products fall into that category. For many families, though, term life insurance plays a big part into ensuring financial security if one income earner dies prematurely.

Oh come on, you can't be serious.

It's not a gamble, you transfer your risk to a collective.

It doesn't matter whether your counterparty for your insurance is a collective or a single individual like Warren Buffett.

The 'collective' part is a distraction when trying to understand insurance.

Similar for insurance to work you don't need to have a group of people who are in the same situation as you: in principle an insurer can work out the risks, even if you are in a unique situation.

It's just that working these things out costs time and money, so it's cheaper for you, if you are like everyone else.

But eg if you are a famous singer, you can insure your voice just fine. Companies also regularly purchase insurance against customers winning prizes. See https://en.wikipedia.org/wiki/Prize_indemnity_insurance

If you want to gamble on your health then you want a tontine, not life insurance.

Life insurance, in the past, was frequently illegal.

I'd argue that it should be illegal again, as a moral hazard (directly contributing to countless murders and other schemes) and as a particularly morbid form of gambling.

> (directly contributing to countless murders and other schemes)

Do you have any data on how much of a problem that is?

In the US, a reasonable estimate is dozens of murders per year. I don't know if we can do any better without running a study: There's no good data easily available; the murder clearance rate in the US is now quite low; most insurance killings are, of course, staged to look like accidents.

But it's enough of a problem that there are quite a lot of legal journal articles about it, e.g.: https://scholarship.law.campbell.edu/cgi/viewcontent.cgi?art...

Life insurance has killed a lot of people. People who would otherwise be alive but for the existence of payouts upon their deaths.

Sounds like insurance companies aren't profit maximising enough!

If I sign up for a big life insurance, those guys better give me a body guard and a food sniffer to protect themselves from a big payout.

No. Many people have family/kids and want to care for them, and their plan A is to work until retirement. If they die prior to that, the family/kids would be in dire straits. That's plan B, the issue life insurance solves perfectly well.

That, in fact, is the general (and beneficial) function of insurance: You only need to provision for the expected loss (plus some fee for the insurance), not the maximum loss (which many people could not afford).

What do you mean by 'expected' loss? You don't mean the expected value in the statistical sense?

That's what I mean.

Suppose you want to insure your home against fire, which could create damage of say $1m with probability 0.1%.

Without insurance, you'd have to put aside savings of $1m (the maximum loss), that would remain untouched with 99.9% probability, and be used to cover the fire damage otherwise.

With insurance, you'd pay the insurer $1m * 0.1% = $1000, plus a bit on top to cover their cost and profit. In case of fire, they cover your loss. Everyone wins.

So, with insurance you replace provisioning for the maximum loss by provisioning for the expected loss plus a fee.

(That's why one should not get insurance for small items (where one can cover the max), such as baggage or mobile phones or so, but for large items, such as house, life, health).

Oh, that's what you mean. Yes, insurance is there to smooth out risks. And I agree that items you can self-insure, you probably should.

Similarly, I can't really understand insuring against expenditures that are certain. Eg insuring for the cost of routine pregnancy (as opposed to insuring for complications only). Or even worse: yearly allowances like 100 dollars flat for new glasses: just decrease my insurance premiums by that 100 dollars, please. (Unless it's a tax dodge, then it makes sense.)