by Adam Juda on Monday, March 2, 2015
Something very upsetting happened to me. One of my tomatoes went bad before I had a chance to eat it. It's terrible that I had to waste money to pay for food I never ate. Wouldn't it be great if I could recover the money I wasted on the purchase price?
We live in a world in which insurance is bought without a second thought. In recent times, I have paid for health insurance, car insurance and apartment insurance. Why doesn't anyone offer personal tomato insurance? I spent quite a bit of time searching the internet, and as far as I can tell, no such policies are available at any price.
Before we delve deeper into this mystery, let's take a look at how insurance works.
- A company figures out the risk of some bad type of event occurring.
- The company finds a large number of people who want to insure against the possibility of that event happening.
- Each person pays a premium to the company.
- People who have been harmed by the type of event insured are paid by the company.
As long as the company takes in more money than it gives out, it makes a profit. The key to all this working is that the sum of money paid by people to the company must be less than the money that it pays out. Thus, on average, people can expect to lose money on insurance. That's OK though. People buy insurance to cover the worst case (and limit the maximum damage), rather than to cover the average case.
So why doesn't any company offer personal tomato insurance? The worst case just isn't so bad. With the average price of a tomato being well under a dollar, the worst case isn't all that bad. The spare change in my pocket is sufficient to buy a new tomato. If the worst case can be handled out of pocket, there's no reason for an individual to buy into a deal where the average expected income is negative.
While personal tomato insurance is not profitable, there are many other types of businesses that are. Software engineering is a great one - and my book on software pricing will help you earn a profit from your next application. Why not pick up a copy today?