But then bear in mind that this person maybe has a big bill to pay and only £5 to their name, do they keep the £5 knowing that it isn't going make any difference or take a wild chance that will?
You're essentially making a bet with your insurance company that xxxx will happen. Just like with the lottery, the expected monetary value of insurance is always negative (it has to be, otherwise the insurance company won't make money), but the utility value of that insurance is different for each person.
E.g. for me, insurance on a phone doesn't make sense, since I easily buy a another cheap phone if mine breaks. But for somebody with less money, those few hundred dollars might have a much higher utility.
a small price for a dream / what if mood
Considering how much money I throw away on streaming subscriptions I barely use, books I never get beyond the first chapter of, food I buy that ends up in the trash, etc, it represents quite good value for money.