[masterzora]

Stand-out quote:

in a sense, trading any of your company for other companies might be a negative expected value play

In general, insurance is a negative expected value. After all, that's how insurance companies make money: by charging more than they pay out. The key with insurance, however, is that it is purchased to cover a catastrophic event. That is, all the money you pay into it will hopefully be more than the money you get out of it but if you end up needing really expensive medical treatments or your house burns down you need to be able to afford to move forward.

With founders and the "founder failure insurance" there is significantly less of this, though. If you fail you don't get an immediate payout, or even a guaranteed payout, failure is not a catastrophic event (in the sense of needing a lot of money fast) for most, and it's actually possible to do well and make money from this.

Really, a more honest way of describing this is as a bet that you will lose, though that's not a complete picture, either.

Intriguing idea nevertheless and something I'd consider if I were a founder.

[ljd]

I could be wrong, but I believe insurance companies don't charge more than they pay out. That instead, your premium is equal to how much their actuary tables say they'll have to pay for someone with your level of risk.

They make all their money through their investment portfolio. Essentially, they earn interest on your premium until they have to pay it out.

[masterzora]

In general, insurance companies derive profit both from taking in more than they pay out and from investing what they take in. Historically speaking the idea is for the insurer to have a positive expected value on the premium alone but some companies (and possibly entire types of insurance? I'm not an expert by any means) these days are willing to lessen underwriting profits in exchange for market share and, therefore, more investment money.

[qq66]

Even still, it would be a negative expected value play for the insured, since they give up the investment returns on their premiums to the insurance company.