If you won an all-expenses paid trip to Las Vegas, would you do any gambling while you were there? Yes, no, well maybe? When my daughter was maybe 16 or 17 years old (you probably remember that time in your life that you were almost an expert at anything) we took a family vacation to Las Vegas. We walked into Caesar’s Palace and she saw a sports car on top of a group of slot machines. The car was the grand prize to be awarded to the lucky winner on that series of slot machines. She promptly informed Mom and Dad that SHE was going to be that lucky someone.
One roll of quarters and three minutes later she told us, “Gambling sucks.”
Do you consider yourself to be like our daughter and want nothing to do whatsoever with gambling? Are you one of those people who think that you never, ever gamble? Well I hate to tell you this, but the insurance industry and insurance policies are built on a gambling premise.
You will be well served to remember this basic principle: The business of insurance is a bet. Insurance is nothing more than a large company (as is a casino), with a large balance sheet, playing the odds against you… on your health, risk of an accident, storm damage, theft, death or other potentially catastrophic loss. Insurance companies educate themselves in extreme detail on the odds of actually having to pay out money on a claim. From this data, they calculate how much they can charge you based on the possibility that you will file a claim, and they still will be able to make a profit!
When you own any kind of property, whether that property is possessions like furniture, clothing, an automobile or a house, when you purchase an insurance policy you are gambling. You are gambling your money every time you make a monthly premium payment. You are betting the premium amount that you spend that something unfortunate will happen to you.
The insurance company is betting also, they’re just not betting with their own money. Not yet, that is. They are betting with a promise! Their promise is that if you experience a loss, they will spend a little bit of their money to make things right for you. The thing is, the insurance company is like the casino. All the odds are stacked in their favor. They pay large amounts of money to actuaries, specialized number crunchers, to determine the odds of you winning the game (having a covered loss). You see, as far as the insurance industry is concerned, the only way you win as a policyholder is for you to lose and have to file a claim. If you don’t win, you lose (you lose your premium payments). If you do win, you lose (something bad has happened to you). What a great game!
If you don’t lose, you lose your premium money. If you win, the best that you can hope for is to break even by receiving the money that you need for your repairs from your insurance provider. Even then you can’t break even because of a little something known as a deductible. You really can only get to within a deductible of breaking even!
Whether someone wrecks your car, you have a major medical issue, or your house gets damaged, you, the policyholder, have to lose to receive any money from your insurance company. And here’s the real kicker! By using those number-crunchers and their sophisticated software programs, insurance companies know in advance just how likely it is that you will file a claim. If they determine that you are more likely to file, they increase the odds in their favor by forcing you to gamble with more of your money, as in charging you a higher premium.
Isn’t It Fun Playing the Insurance Game?
Insurance is a definite necessity in this day and age. We can’t just run out to the back forty and cut down some trees to rebuild our home. We can’t run down to the nearest auto assembly plant and grab a handful of new car parts to fix our own cars. Just please realize that insurance is a gambling game which is stacked against the policyholder. If you have purchased an insurance policy, and something unforeseen happens to you, don’t feel too bad for the insurance company. They set up the game in their favor and made you a promise. They calculated the odds and set the game up in their favor. They collected their premiums. Now they need to make good on their promise. They promised to take care of you like you deserve (minus your deductible that is).
Here is another thing the insurance company is betting on. They are betting that if something bad does happen to you, you will lack the knowledge required to get everything you are truly entitled to.