Should I buy insurance? Can I afford to cover the potential loss? This is the cold-blooded economist’s perspective. This economist will not buy extended warranties on appliances and will not have collision damage coverage on an old automobile. This economist will also take the highest deductible levels.

The loss of a home is unbearable for most families, and therefore most homes are insured. Legal settlements can destroy a family’s finances, and so nearly everyone has liability coverage on automobiles. Other legal risks are often covered in “umbrella” policies. The loss of a spouse’s income stream can be devastating, and thus most married couples have life insurance. The spouse represents love/companionship/ affection as well, but that’s not what life insurance is all about.

Mr. Derek Jeter is financially comfortable. He can afford an expensive automobile. In fact, he can afford several expensive automobiles.

Maybe this is one of his cars. It’s expensive. If he completely destroyed this car, he could easily afford to replace it. Do you think he has collision coverage?

Almost certainly he has collision coverage! That’s just what people do. Mr. Jeter is not an economist. Fortunately he has other skills.