Not many people can afford the loss caused by a catastrophic fire, in which case it does make sense to purchase insurance. But if you are a millionaire and have a $200k house, then you don't really need to buy insurance for the house since you have ample funds to purchase or build a new one if the need arises.
Insurance is putting the risk of a loss onto someone else. Millionaires absolutely buy insurance because it is often the smart thing to do. It is no different than buying/selling options to hedge your stocks during a down turn.
> if you are a millionaire and have a $200k house, then you don't really need to buy insurance for the house since you have ample funds to purchase or build a new one if the need arises.
Unless that fire spreads to someone else's property or kills/seriously injures someone, in which case you'll wish you had insurance.
That still makes no sense at all. If you are millionaire with ample funds, you'd still be down massively compared to if you took out the insurance.
Example - The average UK home contains £35K of stuff. The average annual contents insurance premium is £139. You've been paying for ten years and "Oh no! A fire destroyed all my stuff". You're better off by £33600. In aggregate the insurer makes money, but they don't necessarily make money from every individual. This is where the model makes sense for the buyer and the seller.
Your assumptions are massively overestimating the probability of loss. If insurance premium is only $139, then the probability of loss must be correspondingly low such that the insurance company can make a profit (on aggregate) before having to pay out $35k.
Ok. If you are a millionaire who really would think nothing of shelling out $35,000 tomorrow, what's the best case scenario of going without insurance? 30 years saving $139 a year means you've saved $4200 by going uninsured.
$4200 is noise to someone like this. Meanwhile, if you do suffer a loss, you will be down far more.
