car insurance

[desh]

It's time for me to renew my car insurance. Progressive, my current company, can renew my coverage for $705 for the next 6 months. Which is rather good.

The thing is, Pennsylvania has a "limited tort" option, which I'm not currently using. Essentially, you sign something waiving your right to sue in case of an accident. You have to bend over and take whatever the insurance offers you, with no recourse. (Unless you die or are dismembered or something.) Though you get a substantial discount for doing limited tort. The premium with limited tort?

$487 for 6 months. This is absolutely unheard-of for a male driver under the age of 25 in Philadelphia. I thought I'd be lucky to get under $2000 for a year. $1000 is amazing.

But I kind of like my right to sue. So I'm not sure.

Advice?

Comments

[nuqotw.livejournal.com]

You save $218 dollars with limited tort.

Let's estimate the probability p that you want to sue at 1/10000. Let's imagine the insurance company will give you $0, and that in a lawsuit you could take away $500,000. (I made up the numbers)

Expensive insurance: Your loss by not being able to sue is 1/10000 * 500,000 = 50. You gained $50 by preserving the right to sue, but paid $218 for that right. You lost $168.

Cheap insurance: Your expected gain is $218, the amount you saved.

In general, you would have to win $218/p + $218 to make the expensive insurance worth it. Be cheap!

[desh]

But doesn't my risk aversion play into this? It's really an economics problem, not a purely mathematical one. I'm not running this scenario a number of times that approaches infinity; probably fewer than 4. (After which, I'll possibly either have enough money that I won't care much, or I'll be doing Philly Car Share, or both.)