The Undercover Economist: It’s the way they sell ’em

Here’s what I like about insurance: you pay the insurers money when you do not desperately need it, and then the insurers pay you money just when you need it most.

Curiously, this is not what other people seem to like about insurance. Most people do not try to arrange for insurance payments to arrive when they will need them most. Instead, they arrange for insurance payments to arrive after bad luck.

If your house has just burnt down, “when you need money most” amounts to the same thing as “after bad luck”. But what if your son has just been accepted by Eton, and his older sister by Harvard? That is when the money would be useful, but we are temperamentally more inclined to insure against the tragic death of a child. It goes against the grain to insure against “good news”.

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Tim Harford’s blog

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Tim, also known as the Undercover Economist, writes about the economics of everyday life.