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.

Do you have car and home insurance? All insurance has negative average payout.

Since you asked:

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...