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Consider the following hypothetic scenario:

  • I am offered an insurance policy that promises to pay me a fixed sum of 100k in case I get some very bad disease (say it costs 100 per month);
  • I have 200k in a savings account, which I can withdraw at any time (say it is invested in some ETF, e.g. an S&P 500 tracker).

Instead of buying the insurance policy, I can simply "insure myself" by promising to myself that, if I get that bad disease, I will withdraw 100k from my savings account.

Is this argument correct? Is there any advantage in buying an insurance policy rather than insuring myself through my savings?

note:The insurance policy I refer to pays a fixed sum of 100k whenever one of a list of "bad diseases" is diagnosed. It is independent of actual expenses made

mhoran_psprep
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Erel Segal-Halevi
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1 Answers1

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There are illnesses costing a lot more than $100,000. So you have a very small risk of total disaster hitting you which means your finances won’t allow you to survive.

In most countries the state will make sure you survive. In those countries the state will also make sure you have insurance.

gnasher729
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