Risk and the Money Metric

All 50 states have some form of requirement for automobile insurance. But when you get in your car to go somewhere, how many of us think about our insurance policy? In that moment do we know what the deductibles are, what the maximum amount of coverage we have for liability or collision? Probably not.

We are interested in getting from where we are to where we want to go. We pay attention to those things that will enable that process. We check the gas, we check the mirrors. During the drive we comply with traffic laws and watch out for other drivers who may not be as aware or who might be impaired. We manage the risks of getting from where we are to where we want to go. The insurance policy stays in the desk drawer unless or until something bad happens. And when that bad thing happens, that accident, even if we have an excellent policy with a company that actually pays the full cost of repairs, we now own a car that has been damaged and its trade-in value is lower than it would have been.