Why do people pay for insurance? If they have the money to ensure protection in the case of damage or loss that isn’t guaranteed, why not save the money for when something actually happens?
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> If they have the money to ensure protection in the case of damage or loss that isn’t guaranteed
Say you and 9,999 other people drive cars. Statistically every year one of you is going to get in an accident that’s going to cost $1,000,000. It would then make sense for each of you put $100 into a pot at the beginning of the year, so the pot contains $1,000,000. Then that pot of money can be paid out when the accident occurs.
The thinking here is that most people can afford to pay $100 a year, but very few people can afford an unexpected one-time expense of $1,000,000.
It changes it from an intolerable risk (“a car accident could bankrupt me”) to a more tolerable one (“I pay $100 a year and I’m mostly protected from the financial consequences of car accidents.”)
(I’m leaving aside the fact that most places legally require a certain level of insurance to drive.)
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