Travel Insurance -EV?

[Fortitude]

These guys gotta be making their money from somewhere. I mean they can't afford to pay for all the dead / dying people at the expense of the living / healthy people unless there is more money being paid than money being spent. I don't want to be another one of these guys fish, I don't think I should get their insurance. I can see how it would be worth it if you were into extreme sports or something but I'm going to be a pretty inactive tourist for a few months, I think I'm just one of the donators in this scheme. Of course, I may suckout and get hit by a car or something but I don't really want to buy insurance and 'gamble' on that happening. Thoughts?

[tylerdurden]

Insurance is by definition -EV. You're paying to mitigate the risk, by reducing the effects of variance.

[drewjustdrew]

mostly true, but not necessarily. Some insurance actually runs a negative underwriting return. Money is made by investing the money during the time it takes for the beneficiary to collect. Life insurance for one makes money this way since it is a looooong time befroe they expect to pay out.

[mackthefork]

In fact pre 9/11 it was true for almost all insurance companies, they would run slightly negative books to stay competitive, and make their money on the investments portfolio.

Mack

[Ray Zee]

the only time to have insurance is when you know you are more than about two or three times the risk of an average person in that group.

[jba]

[ QUOTE ]
In fact pre 9/11 it was true for almost all insurance companies, they would run slightly negative books to stay competitive, and make their money on the investments portfolio.

Mack

[/ QUOTE ]

ok so don't buy insurance and instead invest it...

I hope I didn't just hurt your head.

[CCass]

[ QUOTE ]
the only time to have insurance is when you know you are more than about two or three times the risk of an average person in that group.

[/ QUOTE ]

Ray, are you talking about all insurance, or just travel insurance?

[Cyrus]

Insurance is a negative-EV arrangement for you but usually a positive-utility arrangement. You gotta know/define the amount of money that you are willing to lose in EV just so that you are comfortable knowing that when the bad thing happens you are relatively protected.

If you find any kind of insurance that has positive EV for you, then either the insurance company has screwed up or your got to redo the calculations.

[Ray Zee]

any insurance. it only makes sense when you know you are at a very high risk compared to the field that you are lumped in for premiums.
the only case that can be made for insurance is catastrofic kind like medical or for your house if its your major asset. and liability for many cases.

[tylerdurden]

[ QUOTE ]
mostly true, but not necessarily. Some insurance actually runs a negative underwriting return. Money is made by investing the money during the time it takes for the beneficiary to collect. Life insurance for one makes money this way since it is a looooong time befroe they expect to pay out.

[/ QUOTE ]

That's still -EV for you, +EV for the insurance company.

So your total premiums are less than the payout. Big deal. On average, the total utility of all premiums paid (which includes growth of the money if invested), over the lifetime of the policy, is less than the payout. You're keeping score the wrong way.

[Leonardo]

Look, any insurance is negative EV. It is a zero sum game. How on earth would an insurance company make money if they were giving you +ev? All insurance is +utility, otherwise you simply would not take it. Now people may say that insurance companies run their underwriting book at a loss and make up the money by investing, but that does not make it +EV for you. You could have invested the money too. Lending someone money without recieving a sufficient rate of return is -ev. You could have put it elsewhere. Something being -ev does NOT make it bad. And Rays comment is not correct. It does make sense to be insured even if you are of regular risk for your group, if you are by nature more risk averse than a certain, break even utility point.

[MarkL444]

this isnt an issue of EV, its an issue of variance.

[Bet_to_Nguyen]

"this isnt an issue of EV, its an issue of variance"

get it if you'll be skiing