OP are you from a developing country? Because insurance companies in developing countries operates differently, they are more corrupt than those in the western worlds, I've heard alot about insurance frauds and schemes in America alone but do not compare to those in developing country, they are more gruesome and bloody.

Also going for insurance protection means exiting crypto space completely, no insurance company what to insured Bitcoin or crypto here probably because of it's volatility and other, but that's not even why I would worry the most, insurance company knowing that you have Bitcoin is not safe, do you know how many people have been killed by insurance company so that they can take over their belongings?in my country the number is high.

What you've said is mostly right, but there's a nuance. Self-custody isn't often necessarily to eliminate security risk in terms of hacks and all; it is also to eliminate unnecessary exposure of your wealth to this risk.

CEXs are usually a hot target to hackers. Putting your funds in such a pool that is often targeted sounds a bit unreasonable and risky compared to practicing self-custody.

Again, for every anecdotal failure you can bring up about these new and untested companies that caused losses, there are 1000 instances of people losing their self-custody crypto by misplacing it or it being stolen or them being killed over it.



LOL, people use cars for convenience as well. Just because it is far better than walking 20 miles a day to work doesn't make them better!   

But yes, insurance can also fail after the CEX fails. There is no "perfect" solution. My advocacy is more about leveraging help from specialists in society to make your life better. Doing everything yourself is less advantageous no matter what the endeavor. If you have a disease, go to the doctor. If there is crime in your location, support the police. If your car breaks down, go to the mechanic. If you are hungry, go to a grocery store and buy food--don't try to grow everything yourself in your back yard.

And all the while do what you are uniquely good at, and enjoy doing.

This is how this thing we invested a few thousand years ago called, "civilization" works. 

The part of the proposal that never survives contact with reality is the insurance. Ask what the policy actually pays on: exchange hacks, maybe. Exchange insolvency, no. And insolvency is how most custodial failures actually end - the coins were not stolen, they were never fully there (Mt. Gox, FTX). No commercial insurer will underwrite 'the custodian lied about its reserves'. What you get is coverage for the rare failure mode and a fine-print exclusion for the common one.

There is also a distributional point the OP skips. Self-custody losses from forgotten seeds or bad products are individual and usually partial; custodial failures are all-or-nothing and hit every user at once, exactly when the market is down and the custodian's own incentives are worst. A correlated total-loss tail is not the same risk as scattered individual mistakes.

If someone genuinely does not want the responsibility, the honest version of this argument is 'use a regulated ETF where custody is at least audited', not 'insured exchanges solved custody'. The first is a real trade-off people can weigh. The second is a product that has never existed.