Even if it won't ruin you, unexpectedly having to shell out over a thousand dollars for a new laptop might be so much of a hassle that it's worth "wasting" a few bucks each month to not have to worry about it.
Insurance is about pooling and distributing risk. What you describe might be the right move on average. But people live in the world of specifics, not long-term averages. If your new laptop suddenly breaks a few months after purchase and the replacement cost would cause you distress, then the $20 you have saved in an account doesn't help much.
By this logic, nobody should buy life insurance because the insurance companies have calculated their premiums so that they come out ahead. At least on average.
> By this logic, nobody should buy life insurance because the insurance companies have calculated their premiums so that they come out ahead. At least on average.
If you flip the statement, it's "do insure against things that can ruin you".
Whether life insurance is worth it depends on what you mean by that exactly. You can insure your untimely death with a benefit for your family, but there are also contracts that are more of a form of investment, and combinations thereof.
While arguably once you're dead, you're, well, dead, so you personally might not care that much anymore, your family might. And for them the loss of one of the primary earners of the family is probably ruinous, so it's reasonable to take insurance against that.
The investment case is different, it's essentially just an investment contract with associated cost. In that case, you're just buying a service (managing your investment, and to some degree insuring against investment risk). The two forms are commonly mixed together, and then it depends a lot on the structure and cost of the contract. YMMV, but I think over here these contracts have very intransparent cost structures and are commonly more expensive than getting a plain life insurance and a separate investment contract (or investing yourself, for that matter).
No, but consider all of the things that you might insure - appliances and electronics. Now take the total cost of insuring them and put it in a bank account. In the case that one of them breaks, the savings will likely cover that replacement. Chance are none of them will break. Do the same thing next year. Not only to you make a little interest, you have all of last year's left-over premiums.
Almost everything I would want to insure as far as appliances and electronics go are already covered by my renters policy, if you do not have a renters policy go get one, right now, mine is only $10/mo with state farm (including an additional addendum to cover up to $10K in personal electronics).
Of course, there's a $500 deductible on that, but the things I expect to happen that would cause me to file a claim on my policy are likely to end up with a lot more damage than that.
My laptop and personal assets I carry when I travel are an entirely different story, a $500 deductible if my duplex burned down or an electrical storm fried every device in my house is pretty acceptable, but that's over 1/3 of the value of the things that go into my laptop bag. Considering I've already had a car broken into and only recovered $200 after my $500 renters deductible a personal assets policy would be well worth it to me if it cost $10/mo.
No, I certainly don't, but the cost of insuring a $2000 laptop is more cost effective than saving the equivalent amount, it would take me approximately 20 years to put enough into a savings account to cover its loss if I put the same in as the insurance premium on it.
Insurance is there to protect against the unexpected, hopefully I'll never have another laptop stolen again, but it's cheaper to cover the loss with an insurance policy in case it happens again.
EDIT: In addition, insurance is designed to spread the risk. If 200 people pay $10/mo to insure their $2000 laptops, and one is stolen every other month, the insurance company still comes out on top.
Setting aside catastrophic losses˚ there seem to be roughly two strategies. You can take out insurance on your non-catastrophic items, or you could take the money that you would pay into insurance and instead save / invest it.
We should expect the insurance strategy to be a net win iff the insurance company loses money on the account. If it feels otherwise, a combination of the loss aversion and hyperbolic discount rate biases may be at work.
On the other hand, it's easy to end up in a financial situation where coming up with $2,000 on short notice is very difficult, and at that point there may be value in using insurance to shift the cost from a random large cost to smaller and more predictable chunks. It's just worth knowing that this is not cheaper.
˚ I'll define catastrophic losses as those things that must be replaced quickly and which cost enough that replacing them out of pocket would be a severe hardship if they're able to at all.
