[gas0linealley]

“He can lower his risk and thereby lower his prices by locking in today’s price, knowing it will be acceptable for acheiving his desired profit when he sells his corn flakes, or plastic parts, or mutual funds next December. He’s transfered his risk to another party, just as one would when paying an insurance premium.”

Insurance costs money and who will ultimately pay for it?

The consumer of course.

[Toddsterpatriot]

Insurance costs money and who will ultimately pay for it?

Southwest Airlines hedged their fuel costs when oil was much cheaper. Who paid the price for their insurance?

[SupplySider]

Insurance costs money and who will ultimately pay for it? The consumer of course.

So corporations should not take out insurance? I guess that means no fire insurance for their buildings, either.

[supercat]

Insurance costs money and who will ultimately pay for it?

The consumer of course.

Most people who buy insurance will lose money on the deal. Some, however, will benefit from the transaction.

Consider two scenarios:

1. You have a 99% chance of spending $0, and a 1% chance of having to spend $250,000.
2. You have a 99% chance of spending $2,500 and a 1% chance of spending $13,000.

Which is a better deal? The average expenditure in the former case is $2,500 while in the latter case it's $2,600. Nonetheless, I think many people would consider the latter scenario preferable.