[MentalNomad]

There's some good info in this thread, but a few points:

1. Bill Gates would have insurance. He would have to have insurance because it is required to have a mortgage. He would have a mortgage because he could make more on the money investing it elsewhere than he could by leaving it in the house. (The house will appreciate, and he will earn that appreciation whether or not he has a mortgage -- but he can borrow the money at a low interest rate and invest it quite safely and get more money than that.)

2. The question isn't merely what is the EV of insurance -- we also need to ask about the variance. That's what people are keying in on when the talk about the potential for a huge cost -- critical care carries an enormous variance.

3. There is value to maintaining your economic stability. Perhaps you have enough capital to self-insure; lets say you have $100,000. It's not cash. If you end up in the hospital for a month with critical care need, you may need to pay $50k now and another $50k over the next few months in followup. Is everything fine? You have the money, right?

Well, where do you have the money? Part of it is invested in stocks; is it the right time to sell them? The market is down and you were waiting for specific product announcements for you stocks to peak. . . And part of it is invested in the multi-family house you live in. You can't sell it, you need to live somehwere, and the rental income will support you while you can't play. And part of it was invested in a start-up business some aquaintances were doing. It's a good investment, but the money can't be pulled out right now. . .

After you've cashed everything out, and paid the bills, where are you? Broke. Having enough to survive the event isn't enough -- you need bankroll to make more money, or you need money to invest to earn money. And, after the hit, you no longer have the money to self-insure, and now you need insurance!

So my point: it's not just the risk of having to pay out; it's the disruption caused by the paying. Having to limit your investment options to accommodate the sudden need, as well as the consequence of having to lose all or most of the money in an unlikely event.

Stability is key for planning well -- that's why mortgage companies require insurance!