Is insurance a scam?

[XDurionX]

It's about socializing risks. One person's life can be ruined by unfortunate events, but if i distribute the weight on many shoulders it's easier to bear. So no, it's not a scam.

[Doctor Amadeus]

It's a scam because any thing that is federally mandated should be either provided by the government or extremely regulated, the scam is in the blatant age, gender discrimination and the massive amount of profit in it, these company's pray on ill fortune and a mandated catch 22. The only insurance thats reasonable is public insurance, like where I used to live I pay in and at the end of every year after the claims have been paid out I get a check back for my portion of the difference.

Yeah I’m happy with my health insurance but thank god I’m pretty healthy otherwise.

[Elim Garak]

Yes, any insurance is a scam. Otherwise there would be no insurance as there cannot be an insurance that has your interests in mind and is profitable.

[Zogarth]

Insurance is a scam until the moment you actually need it. Then it can suddenly be a life-saver. Buying lottery ticket s is also a huge scam until the moment you get the big win, then it was suddenly a smart investment. That is the thing about probability based industries, you may live your entire life getting nothing of it and feel like is wasted money, or it may one day save your ass.

[Doctor Amadeus]

What is animal insurance for? Dont think we have it in the USA

I think he means pet. But I heard some smart ass took a policy out on his pet goldfish and it paid out. However I guess they stopped covering pets or forced better oversight on the specifics.

[Total Crica]

The fact that insurance premiums rise the very first time you use it after years of not needing to use it makes it a scam.

[Doctor Amadeus]

Insurance is a scam until the moment you actually need it. Then it can suddenly be a life-saver. Buying lottery ticket s is also a huge scam until the moment you get the big win, then it was suddenly a smart investment. That is the thing about probability based industries, you may live your entire life getting nothing of it and feel like is wasted money, or it may one day save your ass.

No the lottery is a scam.

[Lochton]

What is animal insurance for? Dont think we have it in the USA

Incase of the animal doing harm to property, other animals or people, so that the owner can't just claim no pay, insurance makes sure that - for example a bite attack - can be treated and handled fairly.

[Kalis]

Yeah that’s true these guys have it down to a science I’d love to see the numbers on odds and what goes into the figures.

Not so long ago, lots of insurers ran at a loss, i.e. they paid out more in claims than they took in premiums, they made their money from the value of their investments in the stock markets (as an example, insurance companies made up about a third of investment capital in the London Stock Exchange). Motor insurers, where there is a lot of competition, often had some dreadful loss ratios. The 2008 crash stopped that.

[Elim Garak]

The lottery is not a scam. The odds are clearly disclosed.

It is a scam. The winner is not the one who wins the lottery but one who organizes it.

[Doctor Amadeus]

Insurance protects the economy from deviations from expected events, be they accidents, neglect or malice. As long as the cost of insurance (including the profit margins of the providers) is less than the costs that would arise from lack of insurance (which is not just things like damages and healthcare costs but also includes the cost to the economy of someone uninsured dying and thus no longer contributing, a company closing because it cannot recover receivables that it holds no security for and leaving multiple people unemployed, people having to pay extensive rentals because their houses were ruined by flooding etc.) then you cannot rightfully consider insurance a scam.

What you may consider is that the cost of insurance may well be unfairly distributed but that makes it unjust, not a scam.

So economic redundancy? Many layers to secure infrastructure of the economy Incase of failures?

[Doctor Amadeus]

The lottery is not a scam. The odds are clearly disclosed.

No it’s a scam because the idea you could win is as good as zero.

[Kalis]

Incase of the animal doing harm to property, other animals or people, so that the owner can't just claim no pay, insurance makes sure that - for example a bite attack - can be treated and handled fairly.

That’s public liability insurance, some countries have that cover for pets under home insurance.

[Doctor Amadeus]

Not so long ago, lots of insurers ran at a loss, i.e. they paid out more in claims than they took in premiums, they made their money from the value of their investments in the stock markets (as an example, insurance companies made up about a third of investment capital in the London Stock Exchange). Motor insurers, where there is a lot of competition, often had some dreadful loss ratios. The 2008 crash stopped that.

Yeah insurance has to make money nothing wrong with that. But here in the states and Canada it’s obscene the amount of profits they make.

[Kalis]

Yeah insurance has to make money nothing wrong with that. But here in the states and Canada it’s obscene the amount of profits they make.

Insurance companies will often publish their claim ratios, this is premium income less claims paid out, given as a percentage. Some insurance companies are massive, so even a couple of percent profit would run into billions.

Bear in mind they also have the potential for huge losses, so need to have enough assets to make sure they won’t go bust in a bad year.

[Doctor Amadeus]

Yes, that's the point of insurance. It secures that a cashflow will promptly exist when the need for it arises.

This is the problem, when an economy seeks to maximize investment, cash in hand/cash reservers are kept low. That means that any event that breaks your cashflow management can be problematic (and in SMEs it can be catastrophic). Even worse, a cashflow mismanagement propagates across the entire economy; your failure to cover a payment means that the provider needs to reschedule their cashflows since you throw them off budget and may need to delay a payment to their providers and so on. Insurance avoids that and thus allows for companies to hold less cash in reserve. Insurance helps you maximize the money multiplier; that is the speed at which money can move.

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You know that ahead of time though. On those disclosures written with tiny, tiny letters, they make very clear that your chances to win are miniscule at best.

I would use the word know very loosely. I know so I don’t buy a ticket unless it’s a record breaker. Lol

But yea Allstate had a operating income of 6 billion last year and Amazon 4.5 billion. That’s huge.

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Insurance companies will often publish their claim ratios, this is premium income less claims paid out, given as a percentage. Some insurance companies are massive, so even a couple of percent profit would run into billions.

Bear in mind they also have the potential for huge losses, so need to have enough assets to make sure they won’t go bust in a bad year.

That makes sense. I wonder the particulars though 6 billion in income is some serious size. I wonder what Wells Fargo is.

[Benitora]

Insurance is what saved my family's home.

We had a large fire break out in a part of the house that managed to destroy roughly 40% of the house, and with ashes and such being in the rest of the house, we could not live there for 2-3 months.

We where saved by the insurance company, despite us not having the "correct" form of insurance to cover house fire. They pretty much bailed us out of a huge bill that we couldn't possibly ever afford.

Here in Norway at least, from personal experience, never had a problem with the insurance company ever trying to screw us over.

[Zogarth]

No the lottery is a scam.

You think the people winning hundreds of millions off it also finds it a scam?

[Doctor Amadeus]

You think the people winning hundreds of millions off it also finds it a scam?

No but I’m sure everyone else does who didn’t.

[Danner]

Politics aside I just mean in general.

Home owners you have to have it.
Business as well.

The idea on your end is to invest in something you’ll never hope to use on money you can’t get back especially if you go somewhere else.

Insurance no matter what you invested they want to make sure they never have to pay you and always try to find ways to pay you when they have for as little as possible. Then if you use it they can drop you or raise rates on what you paid in.

Maybe scam isn’t the right word.

It's risk mitigation.

A new bike costs $500.
I own a bike, but I worry it might get stolen some day.

I could buy a bike insurance. It means that if my bike is stolen, I get a new bike from the insurance company. Sweet!
The insurance company looks at rates, and find that 10% of all bikes are stolen, annually.
So they charge me $55 a year for a bike insurance. That is their rate where they cover their losses, and still make some money.

I can buy that insurance.
Or I can save up $50 per year towards an "in case my bike is stolen" fund.

Assuming I'm just as often hit by a bike thief as everyone else, it is a better deal for me to save up the money.
Insurance isn't a good deal compared to being self-insured. You always have to pay a markup to the insurance company.
Over a lifetime, maybe my bike gets stolen maybe 5-6 times. If I paid for insurance in that lifetime, I would pay for 7-8 bikes.
Basically - insurance isn't worth it, on average.

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But - a new house costs $500 000.
I own a house, but I worry that my house will burn down.
And with similar calculations, the insurance company charges me $2500 + $500 = $3000 a year for a house insurance.
That $2500 is what they estimate to lose on average, and the $500 is their markup.

I can save up $2500 a year towards an "in case my house burns down" fund rather than buying that. It's a better deal.
But unlike that bike, I can't actually afford to buy a new house in case the old burns down, unless I saved up the vast majority of that house value already.
It's just no way I can causally dish out $500 000 in case of a house fire!

So I pay for that house insurance. It costs me $500 / year in markup, that I otherwise wouldn't have had to pay.
But it removes the risk of me having to live on the street in case of house fire.

That is the value of insurance. Having insurance means I don't have to casually dish out far more money than I have for an unexpected expense in case my house burns down.
Had I casually had $2 billion in the bank, insurance would just be an unnecessary expense though. It would have made more sense for me to just save that insurance money and buy a new house in case the old burns down. Because I wouldn't had any issues with buying a new one if I needed to with that kind of money in the bank.