Should I carry less renter's insurance if I can self-insure?
I believe your statement is mostly correct:  ...all the expert recommendations are based on an inflexible conventional wisdom that presumes that all renters are relatively resource-poor. When you purchase a $50 electronic item at the store and are offered an extended warranty for $3, most people turn it down, not only because they don't think it's worth it, but also because in the event that the item fails between say years 1 and 3, they don't worry enough about that $50 to care if they have to buy a new one, or live without it. The percentage of your net worth also matters. For example, if you had an entire loss tomorrow, you'd be out $20K if you needed to re-purchase your possessions. (30K minus 10K in current coverage.) $20K is approximately 1/44 or 2.3% of your net worth. If a catastrophe occurs and you only lose 2.3% of your net worth, some might consider that lucky, so from that point of view it isn't really a big deal. But on the flip side, if the extra insurance only costs you $50 more per year, you may not even notice that dent in your net worth either. I think for most people, the value of items in their home may be their net worth, or at least a much larger percentage of it, in which case the insurance makes more sense. For someone in your position, it probably doesn't make much difference either way. If you had $300K in valuables in your house, perhaps your point of view would be different.
This person could buy another car at any moment without any money problems, so I don't really see any point in insuring, especially with such a ridiculously high price compared to the extremely low risk. Convenience.  If you self-insure, then an accident means that you have to make arrangements to get the car towed, fixed, evaluated, etc.  If you buy insurance, your insurer would prefer to do all that.  They argue with the mechanic over prices, the lawyer over liability, etc.   And of course, rich people need more liability insurance than other people, not less.  So part of that $1400 is probably money that your friend would have to pay regardless. "Whether or not you choose to buy is a complicated question.  I will answer as ""what you should consider/think about"" as I don't think ""What should I do"" is on topic. First off, renting tends to look expensive compared to mortgages until you factor in the other costs that are included in your rent. Property taxes.  These are a few grand a year even in the worst areas, and tend to be more.  Find out what the taxes are ahead of time.  Even though you can often deduct them (and your interest), you're giving up your standard deduction to do so - and with the low interest regime currently, unless your taxes are high you may not end up being better off deducting them. Home insurance. This depends on home and area, but is at least hundreds of dollars per year, and could easily run a thousand.  So another hundred a month on your bill (and it's more than renter's insurance by quite a lot). Upkeep costs for the property.  You've got a lot of up-front costs (buy a lawnmower, etc. types of things) plus a lot of ongoing costs (general repair, plumbing breaks, electrical breaks, whatnot).   Sales commission, as Scott notes in comments.  When you sell, you're paying about 6% commission; so you won't be above water, if housing prices stay flat, until you've paid off 6% of your loan value (plus closing costs, another couple of percent).  You hit the 90% point on a 15 year about year 2, but on a 30 year you don't hit it until about year 5, so you might not be above water when you want to sell. Risk of decrease in value. Whenever you buy property, you take on the risk of losing value as well as the potential of gaining value.  Don't assume that because prices are going up they will continue to; remember that a lot of investors are well aware of possible profits from rising prices and will be buying (and driving prices up) themselves.  2008 was a shock to a lot of people, even in areas where it seemed like prices should've still gone up; you never know what's going to happen.  If you buy a house for 20% or so down, you have a bit of a safety net (if it drops 10-20% in value, you're still above water, though you do of course lose money), while if you buy it for 0% down and it drops 20% in value, you won't be able to sell (at all) for years. All that together means you should really take a hard look at the costs and benefits, make a realistic calculation including all actual costs, and then make a decision. I would not buy simply because it seems like a good idea to not pay rent.  If you're unable to make any down payment, then you're also unable to deal with the risks in home ownership - not just decrease in value, but when your pipe bursts and ruins your basement, or when the roof needs a replacement because a tree falls on it.  Yes, home insurance helps, but not always, and the deductible will still get you. Just to have some numbers: For my area, we pay about $8000 a year in property taxes on a $280k house ($200k mortgage), $1k a year in home insurance, so our escrow payment is about $750 a month.  A 15 year for $200k is about $1400 a month, so $2200 or so total cost.  We do live in a high property tax area, so someone in lower tax regimes would pay less - say 1800-1900 - but not that cheap.  A 30 year would save you 500 or so a month, but you're still not all that much lower than rent." As someone who has worked for both an insurance carrier and an insurance agent, the reason people buy insurance is two fold: to spread risk out, and to get the benefits (when applicable) of approaching risk as a group. What you are really doing when you buy insurance is you are buying in to a large group of people who are sharing risk.  You put money in that will help people when they take a loss, and in exchange get a promise of having your losses covered.  There is an administrative fee taken by the company that runs the group in order to cover their costs of doing business and their profits that they get for running the group well (or losses they take if they run it poorly.) Some insurances are for profit, some are non-profit; all work on the principle of spreading risk around though and taking risk as a larger group. So let's take a closer look at each of the advantages you get from participating in insurance.  The biggest and most obvious is the protection from catastrophic loss.  Yes, you could self-insure with a group size of one, by saving your money and having no overhead (other than your time and the time value of your money) but that has a cost in itself and also doesn't cover you against risk up front if you aren't already independently wealthy.  A run of bad luck could wipe you out entirely since you don't have a large group to spread the risk around.  The same thing can still happen to insurance companies as well when the group as a whole takes major losses, but it's less likely to occur because there are more rare things that have to go wrong.  You pay an administrative overhead for the group to be run for you, but you have less exposure to your own risks in exchange for a small premium. Another significant but less visible advantage is the benefit of being part of a large group.  Insurance companies represent a large group of people and lots of business, so they can get better rates on dealing with recovering from losses.  They can negotiate for better health care rates or better repair rates or cheaper replacement parts.  This can potentially save more than the administrative overhead and profit that they take off the top, even when compared to self-insuring. There is an element of gambling to it, but there are also very real financial benefits to having predictable costs.  The value of that predictability (and the lesser need for liquid assets) is what makes insurance worth it for many people.  The value of this group benefit does decrease a lot as the value of the insurance coverage (the amount it pays out) decreases.  Insurance for minor losses has a much smaller impact on liquidity and is much easier to self insure.  Cheaper items that have insurance also tend to be high risk items, so the costs tend to be very high relative to the amount of protection.  If you are financially able, it may make more sense to self-insure in these cases, particularly if you tend to be more cautious.  It may make sense for those who are more prone to accidents with their devices to buy insurance, but this selection bias also drives the cost up further.  Generally, the reason to buy insurance on something like a cellphone is because you expect you will break it.  You are going to end up paying for an entire additional phone over time anyway and most such policies stop paying out after the first replacement anyway. The reason why people buy the coverage anyway, even when it really isn't in their best interest is due to two factors: being risk averse, as base64 pointed out, and also being generally bad at dealing with large numbers.  On the risk averse side, they think of how much they are spending on the item (even if it is less compared to large items like cars or houses) and don't want to lose that.  On the bad at dealing with large numbers side, they don't think about the overall cost of the coverage and don't read the fine print as to what they are actually getting coverage for.  (This is the same reason that you always see prices one cent under the dollar.)   People often don't really subconsciously get that they are paying more even if they would be able to eat the loss, so they pay what feels like a small amount to offset a large risk.  The risk of loss is a higher fear than the known small, easy payment that keeps the risk away and the overall value proposition isn't even considered. "The basic idea is that the average person can't deduct health care costs unless they're really onerous. But a business can, and as a self-employed person, you can deduct those costs from the businesses earnings... as long as the business is really generating enough profit to cover the health insurance costs. That's why most people get their health insurance from their employer, actually. The relevant IRS rules say: ""You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents if you are... A self-employed individual with a net profit reported on Schedule C (Form 1040)."" For 2010, thanks to the Small Business Jobs Act of 2010, you can even deduct the premium from your income before deducting the self-employment tax (Source). I'm sure that when you get your tax returns and instructions for 2010 this will all be spelled out." Regarding auto insurance, you have to look at the different parts. In the United Sates most states do require a level of specific coverage for all drivers. That is to make sure that if you are at fault there is money available to pay the victims. That payment may be for damage to their car or other property, but it also covers medical costs. Many policies also cover you if the other driver doesn't have insurance. The policy that covers the loss of the vehicle is required if you have a loan or are leasing the car. Somebody else owns it while there is a loan, so they can and do require you to pay to protect the vehicle.  If there i no loan you don't have to have that portion of a policy. Other parts such as towing, roadside assistance, and rental cars replacement may be required by the insurance standards for your state, or might be almost impossible to drop because all insurance companies include it to stay competitive with their competition.  Dropping the non-required parts of the coverage is acceptable when you don't have a loan. Some people do drop it to save money. But that does mean you are self insuring. If you can afford to self insure a new car, great. The interesting thing is that some people have more than enough assets to self inure the non-required part of auto insurance. But then they realize that they do need to up their umbrella liability insurance. This is to protect them from somebody deciding that their resources make them a tempting target when they are involved in a collision. http://www.ehow.com/about_4625753_cobra-as-selfemployed-health-insurance.html This link makes it clear... it has to be itemized, and is subject to the > than 7.5% AGI rule. The issuer of the service contract is making money. DO NOT buy these contracts.  Self insure over your life time 40/60 years and you will save money. "It depends.  ""High net worth individuals"" is very subjective.   Lets say a person is worth 1.5 million.  High, but not super high.  For one, they should have an umbrella policy.  Until your net worth is above 300K, you really don't need an umbrella policy.  They should insure their home and cars, but should probably have high deductibles.  Health insurance is a must as a bad illness can wipe them out.  They should have long term care insurance when they reach age 60.   Now lets say a person is worth about 10 million.  They might be able to self insure basic transportation and probably don't need long term care insurance.  However, they may choose to carry the full coverage car insurance, or other lines, because it is a value.   In conclusion insurance needs change based on a person's net worth and income.  It is very hard to make a blanket statement without details of the makeup of one's net worth and how they earn their income. Having said all of that, a high net worth (HNW) individual may never be able to drop certain coverage.  Lets say that a HNW owns a 50K condo, 1K square foot condo.  Given that the outside structure is covered by the HOA the insurance on such a unit only covers the contents and liability.  The contents could easily be floated by the HNW individual, but not the liability.  It is probably a requirement, on their umbrella policy, that they carry the maximum liability protection on their vehicles and properties.  In the case above they would carry a policy for the purposes of liability protection. This could also be true of their dependents.  Say for example, their adult child receives some financial assistance from their parents (like college being paid for).  The HNW individuals should have their child cover the maximum liability on the auto policy. According to this site:  A person with a net worth of 1.5 million would be in the 90-95 percentile, a person with 10 million in the 99th. This article does a decent job of describing what constitutes a HNW person or household.  Namely 1 million in investable assets, which is of course a bit different then net worth."