Tuesday archive: Risky business

From 5th May, 2006:

On a recent trip abroad, a reputable international car rental company tried to make me an offer I couldn’t refuse. For just 110 a day, I could protect myself from the frightening-sounding insurance deductible of 1900 – a sum I risked being charged if anything happened to the car. I bravely turned them down.

This was a strikingly overpriced offering. For each day’s rental I was being asked to pay 110 to protect me from the risk of paying 1900. The mathematics are hardly difficult: the insurance is fair only if I crash into something every 90 days. If I believed that, I wouldn’t get behind the wheel at all.

There is plenty of overpriced insurance around, always bundled with some other product. A popular mobile phone retailer will insure your £50 phone for 92 pence a week – nearly £50 a year. The fair price of the insurance is probably closer to £5 a year than £50.

Continued at timharford.com.

Tim Harford’s blog

This blog is no longer updated but it remains open as an archive.

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