Agreed.

It is true, though, that many people fall into the trap of over-insuring. For example, people who could easily afford to replace their car yet pay for comprehensive insurance.

For risks you can self-insure against, you should do so. Otherwise you're just gambling against actuaries, and they're better at the game than you.

For catastrophic events, insurance is a completely sensible bargain for both parties.

Catastrophic event; reminds me of black swans. The more catastrophic, the rarer, but also well be the one with the most damage. As every insurance is itself insured, I'd say if there is something really catastrophic, all crashes and no-one gets money at all.

Financial insurance also build a corset to let the card castel grow higher, until it falls apart on the floor. Idea taken from Antifragile.

Do you agree that we are very bad at evaluating very low probabilities (below .1%)?

Then how much would you bet on the hope that insurance companies are not taking advantage of this psychological weakness for their benefit?

I agree with both your points there, but disagree with the premise that insurance is a scam - the insurance companies provide a valuable service, and they charge what people will pay - the way any reasonable business is going to behave.

From there, it's up to you to determine whether it's worth it. I personally don't have health insurance (though I live in a country with universal healthcare), but I have 3rd-party car insurance in case I accidentally drive into someone's Lamborghini, and it was fortunate that my girlfriend's dad had life insurance so that her mum had some money after he passed away prematurely last year. Just because money is being made doesn't mean it's a scam.

But why are you worried about driving into a Lamborghini and not the fact it would mean you've had a car accident and you could be dead?

This to me is where our perceived realities differ with real life.

Spending the money on defensive driving and/or car safety makes much more sense, but we can only see the future where the accident happens (And we survive) not all the accidents we can stop.

I have no idea about your girlfriends father and what happened but I'd prefer to spent money on not dieing than paying for what happens if I do.

non-lethal car accidents happen more often than those with casualties. And they often are fairly expensive, especially if you manage to involve more than your own car. That's not to say that you shouldn't drive carefully (and I guess your insurance company certainly raises the price once you start driving into other cars twice a month).

Even if all insurance companies are using fear to sell their product, they still have to compete with each other. The insurance industry is the boring financial industry, but is very vast with many nooks and crannies. The companies are making financial gambles estimating risk. And not every company has the same model or the same strategy. Some risks pay off, and sometimes they don't. And from what I understand, in the property and casualty business, the profit the companies make typically comes from investments of their capital and not their loss rates.

If you don't see the value of insurance, then don't buy it unless the law requires. And if you don't like the law, then do something about it.

But if you're family has money, or if you do, it would be smart to put a few bucks into your insurance policy and relax knowing that your capital is not at risk. And if you don't have a lot of money, its nice to know that there's cash available for you when something bad happens.

Yes insurance is finance. Finance is broken, right? Maybe insurance could be too?