IMHO I believe this is very cut and dry. Even though some individuals have indicated that it is the seller's responsibilty for the package getting to the buyer, I totally disagree...

Different sellers set different terms for each transaction. The terms you set forth allowed the buyer to save a few extra dollars if he declined insurance. He as a bidder accepts the terms of the auction when he bid on the item and won it. As a result of declining to pay for insurance out of his own pocket, the buyer not only saves a few dollars but he also then assumes the risk. If you had not made such an offer, then I would agree you assume the risk.

I prefer to deal with sellers who give me a choice. I appreciate the fact that the cost passed on to me is less. I likewise understand that if I decline the insurance, then I and I alone accept the risk. I will opt for the insurance (as a buyer) if the seller's feedback warrants it or his emails are suspect.

As with anything, there are exceptions to the rule. If I were the seller and felt uncomfortable with the buyer (based on his emails and/or feedback) I might go ahead an insure the package myself for piece of mind so as not to have a problem.

I will say this though... On most of my auctions that I've sold on eBay, I offer the choice of insurance (especially if I know the item is going to be less than $20). One time with a good buyer, he asked me about the package after almost two weeks. I felt HORRIBLE and then I started to question my policy of giving the buyer the choice. We agreed to wait a few more days and it finally did arrive. He said it was in fact postmarked with the day I told him it was sent. I personally felt lucky to have avoided that problem.