Insurance: Gambling or not?

OK, for now I want to get something off my chest about insurance. This may not be the best time since some people are trying to rebuild their savings and investments. But insurance should have a place in there somewhere. Some insurance is good, depending on the coverage, rate, and usage. One type that hits home with me is Long term Care. As a CLTC, Certified Long term Care specialist I have a better understanding than most. Also having been my father’s caregiver, I had an aditional hands on point of view. Many do not know the benefits of LTC and some feel it is too expensive. Right now I just want to give everyone my overview of insurance and a better way to look at it. Insurance can be a great investment tool if used properly.
Insurance needs to be looked at as gambling, because in a way it is. You are betting on a certain incident from either not happening or happening at a certain point that will be inevitable. In gambling, you are betting on an outcome and the best possible odds to maximize profit and hope you hit it big. But it may not happen so fast, it may take time or it can happen immediately, but those are the odds you play. You play in hopes of hitting it big and it all depends on how much you gamble. Same goes for insurance. You put down your small wager every month in the hopes you do not have to use it. You are betting the insurance company every month you pay them that a certain incident will not happen. Depending on the insurance, you may not want to get a pay out. Think about it, take a step back. You pay your car insurance with the hopes you do not get into an accident. The car company does not hope, but in a way they want you to to get you to pay higher premiums. People get paid when something happens, agents get paid either way. Agents take their piece and the insurance companies are the casino, taking the bets in hopes of not paying out. Come on, even in black jack you can buy insurance!
OK, here is another way to look at it. I will use life insurance as an example. A customer looking at life insurance should look at it the way a gambler looks at a bet. A true gambler takes all information and perspectives into his decision. He is calculating the odds for HIS best possible outcome. Taking nothing else into consideration to maximize his potential for the best possible payout. A real gambler looks at everything to make his decision. If a gambler did not look at all the angles of a situation, his odds are obviously less and may not even win. Even with the highest odds a gambler knows the risk and might take it, no matter how much of a wager is to be put down. You have to know every angle and every wager you can put down. High risk may mean high payout, but at what cost. Sometimes, a low risk low wager bet can be a great payout, but only with patience.
lIfe insurance is the same way. A young, healthy individual has better odds of getting lower premiums than a man 40 years older, who is a smoker, with heart issues. If one of them purchased life insurance right now, who would you bet on to go first? That is how insurance companies view new policy holders. They are just the bookie looking at taking your bet. But there are some bets they will not take. They will not take a bet they know is a fast payout. Insurance companies only take the best where they are sure to lower the odds and either break even or pay out as least as possible.
So if you are a younger person in their 30’s, no health issues, and a non smoker, the odds of you living a long life are great so your premiums will be lower than someone 10 years older, a smoker, and hs health issues. You will even have lower rates than a non smoker your age. Insurance comapnies will take the sure bet with someone healthy and young. They know over time they will make a profit or break even if you stay healthy and die late in life. They are always willing to take that bet because the odds are high you will live long and pay your premiums. so that young person carries small odds there will be a fast payout. If a 63 year old smoker, with health issues and medications applies for life insurance their premiums will be high. The odds of you dying sooner are greater so the odds are higher and the insurance company may not want to take that bet. The premiums paid will be less than the face value that is paid out. The insurance company will lose the bet and the family will make a profit. Premiums paid will not equal the face value so the beneficiaries will stand to gain and the odds are in their favor. The older you are, the higher the odds are an insurance company will not take your bet.
All you and the insurance company is doing is hedging a bet. I am a healthy 34 year old non smoker only on one cholesterol medication. I know my rates will be low and I am betting the insurance company I will live a long time. They know I will based on the information provided and tests. So they tell me how much I need to pay a month to take the bet. I pay them in hopes that at somepoint the bet will payout. For me the odds are great they will take the bet and for them the odds or low there will be a fast payout. Someone 75 looking, the insurance company will not take that bet. They know they will payout before they take in a great deal from that person so the odds for the comapny are low they will make out. All life insurance is is hedging a bet against your life. The better your health and lower your age, the better your odds. In bad shape and getting older, your odds decrease and so does the potential of any company taking the bet.
A little later I will write the same thing about Long term Care. Long term Care is about the same thing, but you are covering more in hope to get a payout while alive. LTC is just portfolio insurance. More details to come. I may have rambled a little, but it was the only way to get this point out. If you like anything I write here, let me know about it.