A series of fires, floods, break&enters etc. (not to myself, but people i know) recently have got me thinking about contents/liability insurance.

My instinct tells me that insurance is, like the lottery, something of a scam. Thoughts?

Insurance (home, auto, life, etc) is my biggest expanse after my mortgage. I hope never to see that money again. If I were to invest that money instead of paying someone else to, at their profit, perhaps I would come out ahead. Fact is, I would not be saving that money.

Of course its a scam -- its the biggest organized gambling racket in the world, actually -- with international ties and government cronieism to boot.

The math is simple really -- if the customers, on average, came out ahead, then the insurer would go out of business. Simple math: To stay in business, there has to be more money coming in than going out -- Quite a bit more, actually, after you consider employees, equipment, software, data centers, building and facilities, upper-management salaries and associated perks + bonuses, corporate travel, not to mention paying out fairly fat dividends to shareholders. Oh yes, the insurance industry needs a whole lot more money coming in than going out to survive. Just like the casinos, if everyone came out ahead in the end, they'd be out of business in a week. Who do you think pays for all them fancy lights?

Now, jaded as that may be, it doesn't mean at all that insurance is an unwise investment. If you simply take the money you would spend on insurance and put it into a savings account -- a rainy day fund, if you will -- a couple of things will result: first, the interest rate on your savings account probably doesn't even beat the inflation rate. Unless you're investing, your money is probably *shrinking* -- not holding the same buying power. Second, you're likely accruing this fund at a relatively slow rate -- I'm not certain what the average person spends on insurance combined, but lets call it $500/month -- thats probably a lot for a single person, but probably quite small for a family with children and medical insurance. Thats 6 grand saved over a year. That doesn't buy you much in the way of things that insurance is typically used for -- a single fender-bender can easily cost $1200 or more -- assuming no one was hurt. Hit a sizable animal, that's probably $3000. Little Timmy needs braces? $2000-$5000. Medical stuff is insanely expensive -- a single night's stay in the hospical is probably $600-several thousand dollars, depending on geography and the level of care needed. In short, even after accruing your rainy day fund for several years, a single incident could easily exceed it -- say a moderate to severe car wreck, bad fall, or if someone needs a transplant.

Of course, not everyone will need these things over the course of their life -- they'll get small benefits, but nothing that makes up what they've paid in. Most people, luckily, will never need their insurance to cover the kind of catastrophe that makes having insurance worthwhile. This is the gamble that insurance companies make. They employ some of the best statisticians, data modelers, and computer scientists to analyze data, predict trends, and to generally stay one step ahead -- they're very, very good at it. Necessarily so. This is the edge that allows them to stay in business and pay their dividends.

Some people, however, will need that catastrophic coverage -- and this is precisely the product that insurance companies are selling. They call it protection, peace-of-mind, various things -- but basically you are paying them to have your back if and when the need arises, the exact circumstances and terms of which are laid out in full, legal contract. What they will, or will not, cover, and at what price is determined by projections of trends and hard algorithms. At the scale they deal in, the law of averages makes life's uncertainties quite certain -- predictable, even -- they can say with a great deal of accuracy the number of customers who will experience life-ending heart attacks, and the precise dollar amount those deaths will cost them, and they can prepare. A single family cannot predict and prepare for the same. This is why they buy insurance.

I have, for now, only life insurance. Being young and healthy I'm taking an educated risk, but a risk none-the-less, that I won't need medical insurance any time soon. I have enough coverage to make sure that I don't leave any debts behind, and that the people that depend on me are taken care of for awhile if anything terrible should happen. but that's about it.

Insurance companies make money in other ways, of course -- in part by acting as a buyer of goods and services in bulk, saving some expense over what individuals could manage on their own -- and in part by making their own investments; they aren't simply sitting on a big pile of cash, of course, they are investing on a scale that all their customers'' premiums allows.

Insurance is a gamble. Your taking a bet that something will happen to you before your invested money over time would cover said money-requiring event.

In the long run, the average person would be better off investing their premiums vs paying insurance. Unfortunately, there's no way to tell who will and who will not be the average person. So if you don't have insurance, you're taking a bet as well.

Of course its a scam -- its the biggest organized gambling racket in the world, actually -- with international ties and government cronieism to boot.

The math is simple really -- if the customers, on average, came out ahead, then the insurer would go out of business. Simple math: To stay in business, there has to be more money coming in than going out -- Quite a bit more, actually, after you consider employees, equipment, software, data centers, building and facilities, upper-management salaries and associated perks + bonuses, corporate travel, not to mention paying out fairly fat dividends to shareholders. Oh yes, the insurance industry needs a whole lot more money coming in than going out to survive.

However this is ignoring that insurance companies are investment companies. They can pay out more to customers than what customers have paid them, provided the returns on the investments made with the money taken in is more than what eventually goes out.

It is no more of a scam than capitalism in general is. Basically it boils down to a large number of people pooling their resources to invest, and agreeing that people can withdraw money if they need it badly enough. There are limits to what you can take out of course, otherwise the system would just collapse.

Insurance is very much a scam, though it becomes more so the longer you've had a policy (total pay in > probable pay out). It must be remembered that capitalism is not necessarily the shining light of enlightened society some people like to think it is. Insurance companies are trying to make a profit... When it comes down to it they don't care about you beyond their ability to make money from you. They can and will attempt to extract from you whatever profits they can. It is hardly a perfect system (the other side of that being that despite the craziness, it has worked in general -- which is not to say it makes people comfortable/happy)

However, insurance is invaluable on the rare occasion that you need something. Car insurance in particular is good because of the legal buffer it provides. In the long run you will almost certainly lose huge amounts of money to insurance companies, but its sort of a lose lose situation... you either get leeched for support on the assumption that you will eventually need some help, or you suffer a massive "instantaneous" payout when something happens and you don't have insurance.

I wouldn't call insurance a scam, you get exactly what you pay for.

In general its worth having insurance that covers the rare and extreme cases since thats when its really needed, you don't need your insurance company to protect you against your ipod getting stolen, but you do need them to cover your ass if your house burns down. (unless you are so rich that a house burning down won't cause any major financial problems in which case saving your money is better in general).

Basically insurance will always be a loss of money on average but its usually worth losing a bit of money to eliminate the risk of losing everything.

Basically insurance will always be a loss of money on average but its usually worth losing a bit of money to eliminate the risk of losing everything.

This.


Go back in time a few hundred years and look at what happened in a fire. If your house or barn caught fire and was reduced to ashes, you could often get a lot of the community to help you rebuild it. If the tragedy happened to your neighbor then you would be one of the neighbors who contributed.

In other communities nobody would help you rebuild, and you would lose everything.



Personally I prefer to be in the group where everybody puts in a little, and when somebody needs it they can withdraw a lot. The fact that the companies have some overhead and reasonable profit doesn't bother me.

I also see buying insurance as buying peace of mind. Of course insurance companies are not charitable organizations. Their goal is profit and that is also fine by me because if they didn't care they would be out of buisness and they would not be able to provide their services which i find valuable. I am not saying the system is perfect but it cannot be because humans are not perfect themselves. It is up to the law system to protect the customer in case an insurance company demonstrates excessive greed.

Insurance is very much a scam, though it becomes more so the longer you've had a policy (total pay in > probable pay out). It must be remembered that capitalism is not necessarily the shining light of enlightened society some people like to think it is. Insurance companies are trying to make a profit... When it comes down to it they don't care about you beyond their ability to make money from you. They can and will attempt to extract from you whatever profits they can. It is hardly a perfect system (the other side of that being that despite the craziness, it has worked in general -- which is not to say it makes people comfortable/happy)

However, insurance is invaluable on the rare occasion that you need something. Car insurance in particular is good because of the legal buffer it provides. In the long run you will almost certainly lose huge amounts of money to insurance companies, but its sort of a lose lose situation... you either get leeched for support on the assumption that you will eventually need some help, or you suffer a massive "instantaneous" payout when something happens and you don't have insurance.

I'm with you. These evil bastards are right up there with car manufacturers.

Look what they put into cars. ABS, airbags, servo steering. All corrupt conspiracy to sell stuff nobody uses while fat CEOs laugh all the way to the bank.

But I've found a way. Whenever I buy a car, I run tf full speed, then hit the breaks and slam into wall. At least I use all three of those. That'll show them.

PS: the word "scam" does not mean what you think it means. Nor does the rant above have anything to do with insurance.