Understanding what insurance IS makes decisions much easier.
- Insurance is a means of spreading low probability high cost risk among many people so that for the average insuree it turns into a low cost certain-probability payment.
Insurance is a risk sharing arrangement between a large number of people.
For a large group, if you share the cost of a risk among you then if the probability of an event occurring is say 0.1% per year (on average), and the cost of the event (on average) is $X then you each need to contribute $X x 0.1% = $X/1000 per year.
If a company administers the system on behalf of the large group of people they will (entirely reasonably) expect to be paid for their efforts. The cost to some extent relates to the amount of money involved but not linearly. The cost tends to relate somewhat linearly to the number of people involved - but the cost per person is about the same (very roughly) regardless of size.
A Himalayan emergency averages $100,000 - but could be $5000 and could be $1,000,000.
That 0.1% of people claim (Everest ascents at long term fatality rate of approaching 10% not covered :-) :-( ).
Assume the company takes 10% of the actual all up cost. I'm not saying that this is or isn't a fair rate - just using it as an example.
SO - cost of insurance = $100,000 average x 0.1% probability x (1.10 profit margin)
If the claim rate was 1% the cost of insurance would rise to $100k x 1% x 1.1 = $1100
Most people would find it vastly preferable to pay $110 to avoid even a small chance of having to pay $100,000. BUT that $100,000 is the average over many accidents. I said above that cost may be in the range $5000 - $1,000,000
Most people will die on the mountain if the cost was $1,000,000 and they had not paid their $110.
Most people will die on the mountain if the cost was $1,000,000 and they had not paid their $1100.
Insurance is a means of spreading low probability high cost risk among many people so that for the average insuree it turns into a low cost certain-probability payment.
In a competitive market the cost of travel insurance ALL THINGS BEING EQUAL is usually good value.
When buying travel insurance - be sure of what you are buying!!!!
It is very well worth noting that in travel insurance (and many similar markets) ALL THINGS ARE NOT EQUAL. Because the costs MAY be high and because people are people a significant proportion of travel insurance terms and conditions will contain clauses which exempt or limit coverage in quite unexpected ways. These provisos may be, and often are, hidden in the finer print, written in lawyerese and are a real trap for the unwary.
As one only example - if hiring a rental car in Australia and you buy related insurance (which may be part of your more general travel insurance policy or may not) then PROBABLY, no matter what you may think the document says, and no matter what the people at the counter tell you, and even no matter what the non binding written promotional blurbs may say, you will almost certainly not be well or at all covered for
Single vehicle roll over damage
Hitting a kangaroo, emu, bull, ... in non-daylight hours
Rear or under vehicle damage or damage caused by driving under a ledge, truck, barrier etc.
Your liability may be limited to only $10,000, or $20k or $30k, or not at all.
[Taking out rental car insurance in NZ for an Australian trip avoids almost all these traps, but, that's another story]. Really? As above :-(.
Read the fine print.
All of it.
When taking out travel insurance and similar I take time to read all of the relevant portions of the document.
This is a great pain, can take hours and may save you vast sums of money.
Apart from the Australian rental car rorts, the "best" I've found was an airline trip insurance offer that paid (notionally) $100,000 in the event of death on the single flight. Cost was under $5. The flight was from Yogyakarta (half way down Java in Indonesia) to Kuala Lumpur in Malaysia. Reading the fine print revealed that it did not cover travel in the country of departure - as we flew in Indonesian airspace for all except the very final part of the journey (maybe 5%) that "seemed a bit rough". I may have missed a section eliminating Malaysian airspace. BUT the best part was that you assigned access to all your medical records to the "insurer" in perpetuity irrevocably, and after death, and this condition was also binding on your executors. I wonder how much they can sell those rights for for people who buy their insurance?
Really ???? (again).
We passed on that offer.
There are many "reasonably reputable" insurance companies. And some bery terrible ones. In some markets even the top name brand insurers seem to have gone mad - the Australian rental car examples tend to support this thesis. Caveat Emptor. Always.