Is everything really just a gamble?

The current political climate has sparked some intense debates regarding insurance with strong feelings on both sides. As part of one of these debates I heard it argued that insurance is just a gamble. When you look at the function of insurance does that argument truly hold water?

Admittedly there is a use for the word insurance when playing blackjack, however, Merriam-Webster defines insurance a few different ways including as “a means of guaranteeing protection or safety. ” A guarantee and a gamble are certainly not the same thing.

The actual function of insurance is to offer protection. Taking an umbrella along when leaving the house isn’t considered a gamble; after all what have you really lost by being prepared? On the other hand trusting the forecast and going without that same umbrella really is a gamble, if you lose on that bet you are only risking being a bit soggy and uncomfortable but you still lost.

Applying that same principal to insurance, what happens when you gamble by not getting coverage? You could personally suffer extreme financial harm (such as with homeowner’s, car, or health insurance) or your loved ones could be left to feel the effects or this choice (as with life insurance).

What if I pay my premiums and I never actually use the coverage? Admittedly there is a cost to having coverage, though this cost very minuscule when compared with the potential loss, it can be frustrating to continue to pay for something you feel you’ll never use. For the, relatively minor, cost of insurance you still get benefits without using the insurance itself, not least of which is peace of mind.  Given that stress can lead to a reduced lifespan and lower quality of life overall, one less thing to stress about is real benefit.

What about a product like life insurance? The true purpose of life insurance is to protect the loved ones of the insured so the direct benefits are really not meant to be for the insured. For a lot of people that peace of mind is enough value but the truth is modern life insurance can provide a lot of additional benefits for the insured as well. While the purpose of life insurance still remains the same, new cash value policies can double as a way to supplement retirement income, pay for skilled nursing benefits, or even be used as collateral for loans. These living benefits add value to an already lopsided financial transaction, after all having paid for as little as 1 month of coverage an individual could die and leave the full policy benefit to their family.

While almost every transaction can be seen as a gamble from a certain light the point of insurance is exactly the opposite of gambling.




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