If you could know the future: that you would never have a car accident – you would tell your insurer that you wanted a $10,000 deductible, or higher, if they’d allow it. Your premium would be next to nothing. On the other hand, if you knew that the minute you drove off the lot, you’d total the car, you’d probably want a zero deductible. Your premium would be muchg higher, but you would only make the first payment. In reality, we don’t “know” what our risk is, but rather, what we do is to weigh the costs and benefits with our own tolerance for risk.

When I was on vacation in February, I was offered the opportuntiy, while snowboarding to insure a Ford Expedition for an additional $20 a day. I declined, they badgered, and I resisted. I was going to be driving the car from Seattle, WA to Whistler, BC, and then back, 5 days later. I was not going to spend $100 to insure a car for 10 hours of driving. The rental policy was going to cost me more than 6 times what my actual car insurance policy costs me. For the collision insurance only! (The rest of it is covered either by my insurance or the company’s fleet insurance)

I’ve always thought that this sort of “insurance” is a scam. And it looks like my suppositions are on the right trak: Tim Hartford over at Slate explains why rental-car insurance (and other things like it) are in fact, a scam. “The correct response is to insure yourself only against the big risks…” Most people, he says, don’t follow this advice. I try to.

My friend, John, just wrecked a rental car on business, to the tune of $3,000. Until he found out that his credit card automatically re-insures for things of that nature. He got lucky though, look at the fine print on your car insurance, and you’ll probably discover what he did: This policy does not insure vehicles rented by the policy-holder. Car-rental places know this, and exploit it. There is no reason to believe you’re much more likely to be involved in an accident on vacation than you otherwise would be.

What bothers me about John’s situation, is that he was on business, and renting a car on a corporate card. It’s a classic example of “Oh, you’re buying? I’ll have the top sirloin!” Except, John ordered the house salad.

If someone else would’ve footed the bill, I would’ve gladly accepted the exorbitant insurance. Most people will always take zero risk if someone else is paying the premium.

And you wonder why health-care costs are skyrocketing?