Are some insurance polcies philosophically similar to gambling?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
latak215
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Re: Are some insurance polcies philosophically similar to gambling?

Post by latak215 » Tue Dec 25, 2018 8:59 pm

We buy insurance to protect ourselves knowing that lucky people pay more than they receive and also for the costs and profits of the insurance companies.Certain types such as product coverages provide 40% profit margin. Some insurances are required by law. Progressive income tax requires lucky people pay more at least in theory. Where we have a choice, we need to know as much as possible about what we are buying

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ClevrChico
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Re: Are some insurance polcies philosophically similar to gambling?

Post by ClevrChico » Tue Dec 25, 2018 11:43 pm

The purpose of insurance is risk management. Whether you make a claim or not, you managed the risk that you contracted and paid for. That is not gambling.

I think some people do buy insurance that are not managing any kind of risk. That's probably more like gambling. Young, single people with no dependents buying life insurance come to mind.

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tadamsmar
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Re: Are some insurance polcies philosophically similar to gambling?

Post by tadamsmar » Wed Dec 26, 2018 2:16 am

Life is philosophically similar to gambling.

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tadamsmar
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Re: Are some insurance polcies philosophically similar to gambling?

Post by tadamsmar » Wed Dec 26, 2018 2:36 am

Human progress is marked by getting past an abhorrence to gambling and uncertainty.

Even Einstein was uncomfortable with the notion that God played dice with the universe.

Before the 16th Century the notion that God did not play dice with dice was dogma.

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Epsilon Delta
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Re: Are some insurance polcies philosophically similar to gambling?

Post by Epsilon Delta » Wed Dec 26, 2018 3:42 am

Gambling is not the understanding of risk or the taking of risk.

Gambling is the creation of risk, where no risk existed before.

While understanding and taking risk has greatly improved human existence, gambling has done nothing but add a little transient joy and a great deal of despair.

Valuethinker
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Re: Are some insurance polcies philosophically similar to gambling?

Post by Valuethinker » Wed Dec 26, 2018 5:24 am

trueblueky wrote:
Tue Dec 25, 2018 5:35 pm
randomguy wrote:
Sat Dec 22, 2018 9:45 pm
Dantes wrote:
Sat Dec 22, 2018 8:44 pm
The insurance companies are not gambling. Their intent is to have accurate figures for the frequency and expense of the events they are providing insurance for among the population they are insuring, and to charge enough to make it worth their while. There are foolish insurance products, but for the standard types of insurance its not gambling to obtain insurance; its a recognition that, having sufficient means, its worthwhile to pool with others to protect against various types of events.

What is gambling is a choice to not have insurance for house and auto (if you have them), health, and liability (if you have meaningful assets). Having insurance is the opposite of gambling.
If I said, I am buying x that will payout y if z happens, can you tell if I am buying a life insurance policy or a lottery ticket?

Insurance companies are definitely gambling for any but the strictist definition of the word. They are making bets with the best possible info but they could be wrong. Spanish flu comes through again and 10 million americans die, all those life insurance bets will result in them losing money. Medicine results in people living 100 years longer? All those SPIA bets are losing ones. And yes your personal insurance is the same thing. You are taking 1000:1 bets that rarely pay off but when they do your a winner. Stock market investing is also gambling. It just happens to be a EV+ game.

But as you say, you have to gamble. It is the only correct way to live. The problem comes when you have a negative association with that word so you have to come up with a different term when you have to make the bets that life requires.
When the Spanish flu comes along, or Cat V hurricanes hit Houston and Miami in the same month, your insurance company will call its insurance company. It's called reinsurance. Reinsurance works by diversification across many insurance companies, many localities, many hazards.
My understanding is that the total reinsurance capacity of the industry is less than 100 billion dollars. Thus reinsurance cannot handle a string of related events.

One or 2 bad natural disasters yes. More than that no.

Certain kinds of correlated risks like hurricanes it's going to be harder and harder to get insurance.

Valuethinker
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Re: Are some insurance polcies philosophically similar to gambling?

Post by Valuethinker » Wed Dec 26, 2018 5:33 am

Epsilon Delta wrote:
Wed Dec 26, 2018 3:42 am
Gambling is not the understanding of risk or the taking of risk.

Gambling is the creation of risk, where no risk existed before.

While understanding and taking risk has greatly improved human existence, gambling has done nothing but add a little transient joy and a great deal of despair.
I believe Dostoyevsky himself was a gambler and that informed his short novel The Gambler?

The riots between 2 rival groups of chariot racing fanatics in 6th century Constantinople nearly brought down the Emperor Justinian. The Blues and the Greens.

The UK government has finally reduced the maximum bet on Fixed Odds Betting Terminals from 100 quid to 2 pounds. These machines were heavily concentrated on the poorest High Streets and function literally just like an addictive drug. Instant reward but not reliably so. The industry has just lost something like 1.5 billion pounds of profit.

But you can do it on a mobile phone so the problem will persist in some form.

Interesting to speculate what it is in evolution that gives us a gambling instinct. Certainly City Traders and fund managers seem to have it.

are_cynic
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Re: Are some insurance polcies philosophically similar to gambling?

Post by are_cynic » Wed Dec 26, 2018 10:07 am

The difference is that gambling has a negative expected value, while insurance has a guaranteed negative value.

Gambling has two elements, contributions and payout. The payout is not guaranteed, and may or may not balance out the contributions.

Insurance has three elements; contributions, insurable event, and insurance payout. The payout will probably only cover the cost of the insurable event, meaning that once premiums are accounted for, you are still in the negative overall, just not nearly as much as you would have been without insurance. But it’s a guaranteed loss.
"Invert, always invert" ~Carl Jacobi

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