Insurance Is High-Stakes Legalized Gambling

[ElboRuum]

I mean, think about it.

Auto insurance. Legally Mandatory. Basically, you are gambling that you will get in an accident. If you do, you "win", however, you may have been hospitalized, and at the minimum, you are inconvenienced as you get your car repaired... that is, if they pay out and you don't have to fight with them. If you don't get in an accident, you "lose" and the house takes your money. Even when you "win", you lose because the offsetting of costs to the house involves raising your premiums or being thrown off your insurance plan. If you "lose", your premiums are not lowered in most cases.

Health insurance. Pragmatically Mandatory (just try paying a hospital bill yourself and you'll understand what I mean). Basically, you are gambling that you will get sick. If you do, you "win", however you may have been hospitalized, and at the minimum, you'll probably have to make some form of co-payment, meet a deductible, and the medications you need aren't on your plan's "approved" list. If you don't get sick, you "lose" and the house takes your money. Even when you "win", you lose because the offsetting of costs to the house involves raising your premiums or being thrown off your insurance plan. If you "lose", your premiums are not lowered in most cases.

Hazard insurance. Pragmatically Mandatory (protecting your living investment should be a no-brainer considering the amounts involved in their replacement). Basically, you are gambling that lightning will strike, your roof will leak destroying your computer, or some other major calamity will befall your domicile. This is actually a good thing to have, it's largely reasonably priced, and represents insurance against things likely to happen at some point during the useful lifetime of a static structure. However, hazard insurance also likes to play the betting game. You want to know how I know that global warming is a real threat? Insurance companies no longer cover flooding in the standard hazard insurance package. That's a separate policy in most cases. I wonder why. (Rhetorical questions do not deserve question marks.)

Life insurance. Not mandatory, just ghoulish. Basically, you are gambling that you will die. If you "win", someone else gets the money (and you're dead). If you "lose", you're alive, but the house takes the money. If you're reading this and can't see the total absurdity of this arrangement, well, I have this rock for you. Apply directly to the forehead.

In every case, the "house" walks away with nearly all of your cash, and the second you need the "payout" usually you'll get shafted somehow after the fact.

Now I understand why gambling is illegal in most states. Slot machines have better payout odds, and they don't bury their foot in your ass when you occasionally win. That would amount to competition.

[rucky]

1. The trick is to get sick, but not too sick.

Then you get your money's worth.

[spanone]

2. playing the odds...yep

[wuushew]

3. Are you saying insurance serves no purpose?

:shrug:

[ElboRuum]

5. I guess that would depend on the purpose you think it is to serve...

...and compare that against what it pragmatically serves.

[wuushew]

9. Well I would think that something like property insurance is useful

If I lived in a house that caught fire the immediate after math would be much less stressful changing the nature of the risk from a remote possibility severe cash flow event to an annualized risk adjusted payment combined with a pool of similar risk customers.

People have a demonstrable utility for the ability to alter the nature of risk via insurance. The abuses that come from the premiums and free market exploitation are probably best addressed in a separate topic.

[ElboRuum]

12. Yes, provided that utility is actually there.

The utility bears on affordability as well as the assessed risk it is there to buffer against. Is there a point of cost where the utility of insurance is negligible? Is there a point where the accepting the full brunt of the risk oneself is actually less costly on balance than being insured against that risk?

[CT_Progressive]

4. Buy "Return-of-premium" Term Life insurance

http://www.usnews.com/usnews/biztech/articles/041025/25insurance.htm

[ElboRuum]

10. But jeebuz...

$11,000 per year in premiums?

Of course, this is better than the alternatives. Sure the insurance company makes money. They take your premiums, invest them, and they only give you back the sum total of your premiums, which after 30 years is likely to be worth a sizeable chunk less than when you started. But at least you get the dough back.

Nevertheless, I'm wondering whether or not long-term investment funds (maybe with a guaranteed return) wouldn't be a better use of the $11,000. At the very minimum he could will the stock holdings to whomever the beneficiary of the insurance policy would have been. If he lives another 30 years (as expected), the long-term holdings should be appreciably more sizeable than the return-of-premiums.

[Tierra_y_Libertad]

6. "Life insurance is like betting on a sure thing and hoping you lose" - Redd Foxx

[Traveling_Home]

7. No it isn't - It's applied statistics - insurance companies DON'T gamble

[ElboRuum]

11. So you agree?

I never said the insurance companies gamble... the consumer does. Just in the same manner as the casinos don't gamble. They use applied statistics to determine payout ratios such that the house always comes out ahead.

[AngryAmish]

8. Look out Flanders, a hurricane is coming

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