Cynicism in Action: Insurance Companies

Buying insurance is a lot like gambling.

With regular gambling, there is at least some mathematical basis to figuring your odds of winning. The laws of probability are stacked against you at the casino, sure, but it’s a fairly straight-forward process. When you roll two dice, for example, there are thirty-six possible outcomes. Out of that, there are six possible ways of rolling a seven: one and six, six and one, two and five, five and two, three and four, four and three. Therefore, you have a 6 in 36 (or 1/6) chance of rolling a 7. The dice might be “hot”, but probability rules that over many, many, many rolls, it will always even out to that 1 in 6 chance.

When you pay your monthly premium, on the other hand, you’re betting your hard-earned money against the unpredictable whims of chance. The insurance companies have formulas for deciding how likely it is you’ll be maimed in traffic, based on statistics. For example, “Young men are involved in more accidents per miles driven than any other population group” link. Incidentally, Mark Twain once said there are three types of lies: “Lies, damn lies, and statistics”.

I’d say this isn’t quite as straight-forward as classic probability, since there are so many variables involved. But think about it: they’re in business to make money. They wouldn’t be insuring you if they weren’t confident about the profits. They are the casino, and they know they will win way more often than the gamblers will.

Worst of all, the only way you can “win” at the insurance game is by getting sick, injured, devastated, or killed.

Yay you! Yay your grieving survivors!

Insurance companies spend untold billions on advertising each year.

They work hard to create a caring, sympathetic, protective image in the eyes of customers.

Insurance commercials imply that having insurance will prevent bad things from ever happening to you. That’s ridiculous, of course, but people seem to believe it. Insurance only protects you from the aftermath of bad things. Big difference.

As I said earlier, though, insurance companies are in business to make money. They have decided that it is sufficiently profitable to sell insurance policies. If it wasn’t, they would close up shop and start doing something else tomorrow morning.

You need insurance, of course. Things happen. (Cliche alert!) Better safe than sorry. Besides, auto insurance is generally mandatory. By the way, I prefer to drive the absolutely cheapest beater I can stand, and insure it at the minimally legal (comp and collision) coverage. (Disclaimer: that’s just me. I’m not advising you to do that. You do whatever you feel is right.)

Before you’re swayed by the funny cavemen, cheeky lizards and hip super heroes, stop a minute and think critically. Is any one company truly better than the other? What are the actual rates? How is their service? Hip and cool are fine (the kids love it!), but make your choices based on the important issues. Remember they are in business, and looking to sell you something.

Happy thought to end with: Your insurance company does care very deeply about your health, safety and well-being… but only because they’ll lose money if anything bad happens to you.

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Filed under frugal, money management, shopping

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