Week 50 Day 1: Insurance as Risk Transfer: What It Is and Is Not

Insurance is not an investment. It is a risk transfer tool. You pay a small, predictable cost (the premium) to transfer a large, unpredictable risk (a house fire, a cancer diagnosis, a car accident) t...

Insurance is not an investment. It is a risk transfer tool. You pay a small, predictable cost (the premium) to transfer a large, unpredictable risk (a house fire, a cancer diagnosis, a car accident) to an insurance company. You should insure against catastrophic losses you cannot absorb, and self-insure against small losses you can handle. That is the entire framework.