That's what I mean about protecting assets. You bet that you will need to replace your car/house/knee; the insurance carrier is betting you won't. You'll likely pay more in premiums than you'll gain. That makes it a sucker's bet, similar to betting $5 a week on the lottery for 30 years. You might win millions; you'll definitely just spend $7,800.

However, although the odds are against it, you're better off spending a little now than a bunch later should you wreck your car/house/knee. That makes it a prudent bet because you'll keep your assets, especially if you wreck someone else's car/house/knee. It's still a cash loser in the long term.

But, yes, I'd much prefer to sock away cash now (better, invest it so it grows while you're not using it) for such an eventuality. Most of us can't quickly enough save $400,000 to rebuild the house, so we give State Farm a few hundred a month instead. State Farm gets the immediate benefit of that cash, not you.