The Grand Illusion
Over the past several years, but especially over the past few months, I’ve noticed a growing trend in advertising, one which amounts to “insuring” everything.
The most obvious example is that of CarShield, which bills itself as the answer to unexpected car repair bills. But there are other examples, from pet insurance to appliance insurance (in addition to warranty coverage). A month or so I was asked if I wanted insurance for a replacement coffeemaker that I was buying.
Now… some forms of additional insurance are likely worth the price, such as a homeowners’ policy or supplemental health insurance, because most people can’t afford major structural repairs from weather or fire damage and because most health insurance doesn’t cover everything by a longshot.
But replacement insurance for a $35 coffeemaker?
What troubles me most about this is the idea that people need insurance for everything. Perhaps I’m old school, but when I was a child and a young adult, my parents emphasized that life was uncertain and that everyone needed to set aside money for expected events or the so-called “rainy day.”
While most Americans offer lip service to the need for a rainy day fund or emergency savings, according to a July 2024 survey by Empower research, some 37% of Americans can’t afford an unexpected expense over $400, and almost a quarter (21%) have no emergency savings at all. And one in four Americans dipped into emergency savings last year, not for emergencies, but to cover basic living expenses, while sixty percent of Millennials are stressed about a financial emergency striking.
Part of me wonders about whether this is really all about economic deprivation, but when I look at the student parking lot at the local high school or the local state university and see that most of the cars are newer than my 15 year old SUV, I have certain doubts. These doubts are bolstered when I see brand-new twenty-foot powerboats in the driveways of the most modest homes in town, or when students who protest that they can’t afford textbooks drive late model cars, presumably without CarShield insurance.
Insurance is an odd thing. About the only one I actually got any benefit from is travel insurance, because it covers a wide range of things. House and or contents is far too often invalidated by the insurers, and rarely covered even a third of the cost of what was taken, I don’t bother any more. Car insurance I usually have 3rd party only, I only get full insurance until I can afford to replace the car myself.
But I’m old and weird and have savings.
My friends in Amsterdam by contrast have oh, 50ish policies each, all for a few dollars, and all super specific. They start with the government mandated health, car and house, then add on bolt on extras, like teeth, tyres, roadside assist, eyesight, funeral costs, fire, theft etc, each of which extends for something specific. Claiming on one doesn’t affect your rating with the others. And genuine competition seems to keep prices low.
It’s a very different society.
My friends also highly rate pet insurance, because their cats tend to break in expensive ways.
Cats do break in expensive ways,
That is the Dutch way. We’re generally taught to save up for stuff we want to buy, and not buy things on credit, except for your house – that you do buy with a mortgage.
But we’re also inclined to get insurance for lots of specific things and circumstances, often for health, home, or juridical stuff – the kinds of things where unexpected expenses can outrun the savings you’ve built up. But not for replacing relatively small-ticket items!
Living on credit is generally frowned on, though some people do so and try to fill one hole by digging the next, and getting in deeper. It’s usual to pay with a pin card directly from your bank account, which has a spending limit; not by using a credit card that might lead you to overspend and get into debt. People do have credit cards and use them when on foreign vacations or buying things online, but not to pay for groceries or clothes in a store. Different mindset.
> when students who protest that they can’t afford textbooks drive late model cars
There are vanishingly few students at the university or high school (especially high school!) who bought their own car. The idea that any student working at most a part-time job is able to pay hundreds a month for a car loan (much less actually pay cash for a multi-dozen-thousand-dollar purchase) is laughable on the face of it – and if they try, then yes, they cannot afford textbooks. Or food.
Honestly, a lot of your stories from Cedar City have the same root cause. Why do the students have nice cars but no money? Because their parents told them they were special and bought the car. Why don’t they understand that a music degree requires diligent practice and skill? Because their parents told them they were God’s special child and therefore deserve good things.
There are too many parents similar to those you describe, but those same parents won’t pay for health care for their children, or books, and too many of the children spend what money they have on frivolities rather than basics.
Most of that insurance comes under “You can fool some of the people all the time, all the people some of the time but not all the people all the time.” Rarely is it worth it and generally in the US, they deny the insurance or it doesn’t cover everything like my health, dental and vision insurance. I did luck out with device insurance on a Microsoft Surface when they first came out.
Insurance like gift cards is a very profitable business. In most cases the insurance covers the basic warranty anyway. Or people lose or forget about the insurance. It is almost pure profit. Gift cards are a close second in that a lot of them never get redeemed.
There is a slight resemblance between insurance and casinos or lotteries, in that they both base their ability to remain in business on statistics.
They differ in that you don’t NEED to gamble (and shouldn’t unless you treat it as confined by a limited entertainment budget), but you need some insurance, although certainly not as much as is being sold and promoted.
Some slight consideration of what one can afford to self-insure is reasonable, and of the odds when one can (those odds being that the insurance company takes in more than they pay out).
A certain amount of business including but not limited to insurance depends at least in part (hopefully not entirely) on gullible consumers. As long as it’s not an outright lie or misrepresentation or other violation of implied contract, that’s not illegal, even if it’s morally or ethically questionable.
My father was for a time a school teacher in a fairly poor district. He taught a thing or two not on the curriculum, like how to count change quickly and not be cheated that way. Clearly there’s room for education of (future) consumers, but a lot of the gullible probably didn’t pay attention anyway.