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superman

Is insurance a scam?

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I understand that insurance makes sense - you pay $1000/year and all your assets (potentially worth 100,000s of dollars) are protected. But the whole business model depends on most people never needing to make a claim. Could you not argue that instead of paying an insurance company the vast majority of people are better off putting that money aside in a savings account or something. Of course there will be a couple of people who are totally screwed over when they can't repair their house - but most people end up better off without insurance

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51 minutes ago, superman said:

I understand that insurance makes sense - you pay $1000/year and all your assets (potentially worth 100,000s of dollars) are protected. But the whole business model depends on most people never needing to make a claim. Could you not argue that instead of paying an insurance company the vast majority of people are better off putting that money aside in a savings account or something. Of course there will be a couple of people who are totally screwed over when they can't repair their house - but most people end up better off without insurance

 

Insurance is a zero sum game. Insurance policies will always be tilted in favour of the insurer because they look to make a profit, which is only natural because they are offering the service of assuming your risk and then paying out based on that risk.

 

It’s pretty much a commercialized of hedging. Big financial services companies actually sell each other insurance all the time in the form of interest rate swaps so that their risk positions end up neutral. 

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