In a lot of situations you don't get the choice, eg vehicle insurance, homeowner's insurance (under normal circumstances banks require proof of insurance before they'll give you a mortgage), etc. It sounds like you're renting though? In that case it may or may not make sense to buy insurance, which would mostly just be on your contents I think. Read the fine print and everything, replacement cost policies will cover the whole replacement cost, cash value will deduct depreciation costs and you'll wind up unable to replace everything, etc.

Sixish months ago there was a fire in our condo building. Fire damage was limited to one or two units, but a lot of the building suffered water damage and was declared uninhabitable by the city until cleaned up. Our unit and many others were completely undamaged but we had to move out on one day's notice anyway. We found a small place with exorbitant rent and dealt with moving expenses, mail forwarding, etc, meanwhile mortgage still needs to be paid. Without insurance what would we do? Get our money back from the resident responsible? It's been six months and the condo insurance (the condo insures the common property, individuals have to insure their own units and contents) hasn't even started court proceedings as far as I know and they employ lawyers full time to handle these things. So what hope would you have? Again, meanwhile you still have to fork out rent on top of mortgage. Besides, in this case the responsible party has no liability insurance (they would have been covered if they had hired a certified plumber...) so there's no money anyway. Lose lose, they get to go bankrupt and you get nothing.

Some people in the building had problems getting their insurance to pay up - that's what you'll hear stories about. Again it pays to read the fine print. Luckily our insurance covered everything and sent out cheques same day.

Of course, the renters in the building just took their stuff and moved out. They had a hassle but not a financial loss.

Warren Buffet talks about insurance a lot, which is a major (his biggest?) business for him. According to him, the major profit in insurance is investing the pooled payments. They pay out more in claims than they take in payments from customers. It's not a scam, it's a business. Whether you need the service or not is up to cost-benefit analysis. As others have pointed out, the rule of thumb is to insure against catastrophic losses, budget for normal costs.

PS obviously I'm not an expert. I've just had to do some reading up on the subject recently.

If you really think that insurance is a scam or question if it makes sense to purchase insurance on your most expensive assets, then ask yourself this.

Is paying a fraction of the value of something worth the cost of replacing it, if it were to be destroyed?

How many years will it take you to have saved up enough money to replace a house you are building if you took your insurance payments and put them into a savings account? What would you do if it caught fire and burned down the day after you built it?

I tend to get it for anything over £200. Chances are i wont claim but i would rather have the option to if something happened. I found on things that are not mandatory unlike car insurance ( ) you can general find some relatively good deals if you spend some time searching. I wouldn't really call it a scam though, so long as you get a policy that works for you, the joy of getting a nice lump sum from an insurance company would feel tons better than the pain of paying out of your own pocket.

Of course it's not a scam. You are paying to minimize uncertainty.

I consider insurance is WYDTS (what you do to security), compare to WYETH. It the thing you paid for and hope for the best, and forget about return - that what investment vehicle is for. It's like the fire extinguisher in the office that you replace every year. You've paid for it, but at the same time you wish you never have to use it.

fires, floods, break&enters etc

Just make sure the policy doesn't scam out with fine print. Flooding near an ocean, near a river, near a storm-water drain, or in an area that shouldn't normally have rivers (but does due to flooding), might all be classified differently.
e.g. in some recent flooding here, in areas that were too far from traditional flood plains,the companies classified the flooding as a "heavy downpour storm event", which wasn't covered. People actually on a traditional flood plain simply weren't eligible for cover. One the people in-between get paid.
Same goes for fire, or theft, etc - could be that only accidental fires are covered, but if it's caused by arson then it's not, etc... or vice versa. Or that if you didn't take adequate steps to mitigate the risk of theft or fire-damage, then no pay-out.

The classic stereotype of insurance companies is that they'll go to extreme lengths to find a loophole to prevent a pay-out.

Just make sure the policy doesn't scam out with fine print. Flooding near an ocean, near a river, near a storm-water drain, or in an area that shouldn't normally have rivers (but does due to flooding), might all be classified differently.
e.g. in some recent flooding here, in areas that were too far from traditional flood plains,the companies classified the flooding as a "heavy downpour storm event", which wasn't covered. People actually on a traditional flood plain simply weren't eligible for cover. One the people in-between get paid.
Same goes for fire, or theft, etc - could be that only accidental fires are covered, but if it's caused by arson then it's not, etc... or vice versa. Or that if you didn't take adequate steps to mitigate the risk of theft or fire-damage, then no pay-out.

The classic stereotype of insurance companies is that they'll go to extreme lengths to find a loophole to prevent a pay-out.

Good post. I think that pretty much underlines the discussion.

Insurance would make sense from a certain point of view if it weren't for the fact that you're gonna need to pay a good lawyer a significant ammount of money to make sure you are actually covered by the insurance for what you expect to be covered for, and when you need to claim you will need to spend a hell of a lot of money on a great lawyer actually getting the insurance company to pay you, quite possibly more than what are you are trying to claim. In view of that I would say that in theory it can make sense, but not in practice

EDIT: Actually I can think of one case where it does make sense in practice. If you are rich and powerful and you have something of enourmous value to you that could be taken from you. An example would be a footballer's legs where the footballer would insure them not in case he broke his legs, but to prevent people breaking them if he doesn't pay large ammounts of money for "insurance". This would be more like mafia protection money than insurance, but legal on the surface of it

I think anyone can claim it a scam solely owing to the substantial profit margins some of these insurance companies have. Maybe I'm just stretching the definition, but I'd say any business where people are making way more money than they should be able to is a scam.

That said, most of these are voluntary. By and large, the ones that aren't are the ones that (can) pertain to you having to pay for damages to *someone else*, e.g. car insurance. In a world where all of your debts can be absolved (with far less significant consequences), "personal savings and responsibility" is no longer a viable option for these. Anything else I can say on the topic has pretty much been covered.

I think anyone can claim it a scam solely owing to the substantial profit margins some of these insurance companies have. Maybe I'm just stretching the definition, but I'd say any business where people are making way more money than they should be able to is a scam.

Google is a scam?

[quote name='SeraphLance' timestamp='1301864371' post='4793946']
I think anyone can claim it a scam solely owing to the substantial profit margins some of these insurance companies have. Maybe I'm just stretching the definition, but I'd say any business where people are making way more money than they should be able to is a scam.

Google is a scam?


[/quote]

Fair enough. I should throw "with their quality of service" in there.