From what I can make of their policy, paypal does not really "insure" anything. Let's say I have an ebay auction. You win. You say the package never arrived. I tell you I sent them. You file a claim with ebay/paypal. If I can show that I sent the package (USPS receipt or whatever), you lose. If I can't prove that I sent the package, you win and they deduct the $ from my paypal account.

Doesn't cost them a cent.