Overinsurance

Buying home contents insurance, the tricky part is estimating how much you need for the total amount of the cover. The insurance sales rep suggested I imagine that I lost everything – how much would I need? But losing everything is not a very likely event (touch wood!). And in the more likely case of a minor loss then less than full coverage is all that you need – if you only insure everything for $10,000 and your $2,000 TV is stolen then you will receive a $2,000 payment.

Which makes me wonder why they don’t scale the claim limits for minor claims in proportion to the total amount insured. Perhaps it’s more profitable to just take advantage of people’s propensity to overestimate the probability of catastrophes and encourage customers to overinsure.