..... He now self insures! ..... I've learned some hard lessons on this one. Insurance a waste of time, ...
I think that, unless one has very tight cashflow issues to contend with (and is prepared to do a little 'gambling'), many types of insurance (including 'extended warranties') are, indeed, not just a waste of time but also a waste of money.
Assuming the insurers have done their sums right, in the long-term the total cost of premiums paid by someone should be equal to the 'average' cost of claims ('cost incurred') PLUS the insurer's profit - which will obviously be greater than the 'average' amount one would have spent on repairs/ replacements had there been no insurance.
Insurance is simply a way of sharing unpredictable costs over time and over a large number of people, the downside being that everyone has to contribute towards the insurer's profit. When there is a very low probability of massive costs (e.g. Buildings insurance), this is not only sensible, but usually essential/inevitable (despite the additional cost of the insurer's profit) - since virtually no individuals could contemplate 'self-insuring' a building. However, as the probability of costs/claims increases (i.e. such that one could 'cope with' the costs if/when they arose) the less sense does it make to pay for insurance (including the insurer's profit).
Even if the insurance is 'fair', the only real 'upside' is that one's long-term expenditure is limited to "average costs PLUS insurer's profit" - whereas, without insurance, one could be very unlucky and suffer costs far above the expected 'average' figure.
In many contexts, 'self-insurance' therefore makes sense (for those who could 'cope with' the financial risk it involves). A half-way house that I have very occasionally heard of being implemented is for a group of people to get together to 'insure themselves' - which has all the cost/risk-sharing advantages of insurance but without any money being 'wasted' on an insurer's profit.
Kind Regards, John
