Why People Buy: Part 6, Reassurance

My risk of early or unexpected death is quite low.

I’m highly educated (I have a Master’s degree), exercise 5+ days per week, and I have excellent medical care. I haven’t smoked for over ten years. By all indications, I shouldn’t be worried about dying an early death. I’m not worried about it.

But what if I did? What if I was gone and my family needed a replacement for my income?

That’s why I have life insurance. Even though my risk of early death is quite low, the risk still exists. It’s not zero, but the risk is there nonetheless.

People by reassurance.

In this case, I’m buying reassurance in the form of an insurance policy. The industry exists almost exclusively to provide reassurance and hedge against unlikely but extremely costly events. If you own a house, you’re also the proud owner of an insurance policy.

Some of us can live with more risk than others. Some of us are so afraid of risk that we over-insure.

If you’ve ever bought a new TV, surely you were offered an extended warranty. The smart money says never buy the extended warranty. If you get a bad TV, it’s likely to demonstrate problems right out of the box (when it’s still covered by the original warranty), not 5 years from now. Most extended warranties add either 3 or 5 years of coverage to your TV, yet a new LCD TV could last as long as 58 years.

So why buy the extended warranty? Because it makes us feel secure. Reassured. Certain.

And a future with reassurance is a future worth buying.