Iceland was as cold as I had imagined. But less so than I expected for late September. The Blue Car rental building was at least twice the “3 minute walk” distance from the airport as advertised on their website; Google's zigzagging route did nothing to help. We could only see the man behind the counter when we were less than a meter out, as if the desks were unmanned and already autonomous. He peered up from behind the newish 21.5” iMac. “The only thing we do not cover is the extra Sand and Ash Protection” he said, tapping on the amateur sign sitting atop the counter. “You never know what the weather will throw at you, especially if you are traveling in the south.” I hemmed. “How much would it be?” I asked. “Just 1500 ISK per day,” he replied. I hawed. 9000 ISK would be about 80 USD which was just in the range of acceptable “peace of mind” insurance. “Okay,” I said.
Why do we buy insurance? It is a “means of protection from financial loss” (crowdsourced) which, in my car rental case, had a maximum of the price of a new 2015 Kia Sportage, or about $21,900. I think we can be more specific for why we buy insurance though. The primary reason for insurance should be protection from not just any financial loss, but unacceptable financial loss, unacceptability being deemed per individual. There is no point in buying insurance on $21,900 if losing $21,900 would not be a disastrous / catastrophic / generally unacceptable outcome. Something like a Long Term Disability (capitalized to be consistent with the coincident insurance offered) however, where future earning potential is severely hampered, is a great example of an unacceptable financial loss. The secondary reason for insurance is if the expected value of the insurance is positive (eg. the probability of weather causing sand and ash damage, multiplied by the damage value, is greater than the cost of insurance). Many events will not have clean probabilities and values. In my car rental case, $90 / $21,900 represents 0.4% probability of complete car destruction.
My conclusion from this adventure is to buy Long Term Disability insurance instead of Sand and Ash Protection for a rental car.