“When Is Insurance Worth It?” by kqr

TL;DR: If you want to know whether getting insurance is worth it, use the Kelly Insurance Calculator. If you want to know why or how, read on.

Note to LW readers: this is almost the entire article, except some additional maths that I couldn't figure out how to get right in the LW editor, and margin notes. If you're very curious, read the original article!

Misunderstandings about insurance

People online sometimes ask if they should get some insurance, and then other people say incorrect things, like

This is a philosophical question; my spouse and I differ in views.

or

Technically no insurance is ever worth its price, because if it was then no insurance companies would be able to exist in a market economy.

or

Get insurance if you need it to sleep well at night.

or

Instead of getting insurance, you should save up the premium you would [...]

---

Outline:

(00:29) Misunderstandings about insurance

(02:42) The purpose of insurance

(03:41) Computing when insurance is worth it

(04:46) Motorcycle insurance

(06:05) The effect of the deductible

(06:23) Helicopter hovering exercise

(07:39) It's not that hard

(08:19) Appendix A: Anticipated and actual criticism

(09:37) Appendix B: How insurance companies make money

(10:31) Appendix C: The relativity of costs

---

First published:
December 19th, 2024

Source:
https://www.lesswrong.com/posts/wf4jkt4vRH7kC2jCy/when-is-insurance-worth-it

---

Narrated by TYPE III AUDIO.