Why buy insurance?

[Eulogy]

After reading quite a few hreads here at SDN, I get the impression that insurance companies are essentially con men. Con men who promise to look after you if you get in over your head and take off when you really do need their help - and charge more afterwards.

So if insurance is so piss poor at preventing financial ruin, why the fuck would rational, informed people voluntarily and consiously purchase insurance? Why pay more in premiums when an actual disaster would likely cost less to fix?

[Junghalli]

I don't know about you but my medical bills would be a lot costlier without it.

[Alan Bolte]

Well, you have to consider what specific insurance is available to you, and whether or not it is worth the cost. Some isn't, some is. Plenty of people do choose to do without, even though they might be able to afford it if they spent less on other things. I'm not saying everyone can afford health insurance in the U.S., just not that everyone who can buys it.

The second big issue is the hope that you'll get a better job in the future, with better health insurance. If you acquire a long-term illness or injury between now and then, and you have health insurance the whole time, your new insurance will cover you. If at any point you go without insurance, your illness won't be covered at your new job. Thus there is what many see as a good reason to buy insurance that isn't worthwhile in itself.

[Superman]

The number one cause of bankruptcy in the US is medical treatment. All you have to do is become injured to the point of needing a trip to the ER to become financially sunk. Is that a risk you're willing to take?

[Superman]

Edit: I should have said 'uninsured medical treatment.'

[PeZook]

So if insurance is so piss poor at preventing financial ruin, why the fuck would rational, informed people voluntarily and consiously purchase insurance? Why pay more in premiums when an actual disaster would likely cost less to fix?

If you have a home, flat, a car or other valuable posessions, and it burns down, even two years of court proceddings and haggling with your insurance company will probably cost far, far less than fixing the disaster out of your own pocket.

[Broomstick]

If at any point you go without insurance, your illness won't be covered at your new job.

It's not so simple as that.

If you've been without insurance longer than a certain time frame your new insurer has the option to not cover pre-existing conditions, not a mandate. So, for instance, when I was hired by Blue Cross Blue Shield ALL pre-existing conditions were, in fact, covered from day 1 of coverage. But they didn't have to do that.

There are also certain items that can't be excluded, limits to exclusions, and so forth. Which just makes the whole mess more complicated.

I don't know whether to be happy or not that in May, being without insurance coverage for 6 months, we qualify for the State of Indiana program.

[Broomstick]

Leaving health insurance aside, since that's a bit of an oddball and US limited, insurance may or may not be a good deal for the buyer depending on circumstances.

For example, in some instances life insurance makes a lot of sense - it can be structured to pay off a mortgage in the event of a breadwinner's death. It can ensure sufficient funds to educate minor children. There are a lot of reasons for buying it - but don't buy what you don't need. Most people do not need $100 million in coverage. If you have no dependents it might make sense to purchase sufficient quantity to, as they say, "pay final expenses" (funeral and burial) so as not to burden your relatives and friends but use the rest of the money for something else you can enjoy while alive.

With auto insurance, it's a legal requirement in the state in which I live. Since lacking it can net me a hefty fine and maybe a night in jail it seems prudent to have some sort of coverage. Also, when I am paying off the loan I used to purchase said car the lender requires a certain level of coverage so if I trash the thing they can recoup at least some, if not all, of their money. After it's paid off I usually opt for a very high deductible (I can pay for most repairable damage myself) but keep liability, in case someone sues me because they fell asleep and rear-ended me at a stoplight (happened to a friend of mine - the lady who rear-ended him sued him). I am, of course, runing the risk of the car being totaled and I have to buy a new one without insurance money to coverage the vehicle damage, but that's a risk I choose to take. Then again, I don't buy really expensive vehicles. If I did, I might well think buying coverage for physical damage to be a good idea.

Bottom line is that insurance CAN be useful, IF you go about buying it in an intelligent manner. The insurance agent, of course, will always try to convince you that your'e not buying enough.

[Simplicius]

In my state, automotive liability insurance is required if you are a driver, while other automotive insurance is optional. I think the tipping point is value vs. cost; I drove a rather elderly vehicle before I placed it in storage, and since I would have been paying more for the insurance than the car was actually worth, there wasn't much point in maintaining coverage other than the minimum required by law.

Where insurance seems most like a scam is where companies reduce or drop coverage for certain categories of risk, or for rather trivial indications of future risk which may require insurance companies to actually pay out - you know, to fulfill their stated purpose. Insurance is a useful service, but it does not mix well with the profit motive.

[Eulogy]

After it's paid off I usually opt for a very high deductible (I can pay for most repairable damage myself) but keep liability, in case someone sues me because they fell asleep and rear-ended me at a stoplight (happened to a friend of mine - the lady who rear-ended him sued him).

Please tell me the bitch failed. Or, at the very least your friend got revenge.

So, if you're going to buy insurance, how do you keep the costs down (other than the obvious "don't do stuipd things")?

[Master of Ossus]

After it's paid off I usually opt for a very high deductible (I can pay for most repairable damage myself) but keep liability, in case someone sues me because they fell asleep and rear-ended me at a stoplight (happened to a friend of mine - the lady who rear-ended him sued him).

Please tell me the bitch failed. Or, at the very least your friend got revenge.

So, if you're going to buy insurance, how do you keep the costs down (other than the obvious "don't do stuipd things")?

The best way is to decide how much coverage and what features you really need. For instance, for me, insurance is meant to cover me from catastrophic loss. I don't actually care too much, for instance, if my car suffers $10,000 in damage--I'm worried that I will get seriously injured and will be unable to work, so I chose a car insurance plan with a fairly high deductible but excellent personal injury coverage, and uninsured driver coverage, to protect me in case something like that happens to me. Your valuations of what's important in insurance may be different from mine, but you can tailor your plan for what you need to protect yourself when you really need it.

[Broomstick]

After it's paid off I usually opt for a very high deductible (I can pay for most repairable damage myself) but keep liability, in case someone sues me because they fell asleep and rear-ended me at a stoplight (happened to a friend of mine - the lady who rear-ended him sued him).

Please tell me the bitch failed. Or, at the very least your friend got revenge.

Judge threw it out of court

So, if you're going to buy insurance, how do you keep the costs down (other than the obvious "don't do stuipd things")?

Buy only what you need.

Opt for a high deductible.

[wjs7744]

Speaking of insurance in general, it does seem kind of odd, doesn't it? After all, taking out insurance is effectively a form of gambling, and intelligent people don't tend to do that so much (the lottery, for example).

So why do people take out insurance? I would suppose it is because of the nature of the risks involved. You either have an accident, or then they get your money. Seems you lose out either way. However, accidents can be so bad that it is still worth taking insurance, despite the fact that accidents are not guaranteed and paying for insurance is. This may seem counter-intuitive, since insurance companies must obviously take more in premiums than they pay out, but those who never need to make claims theoretically make up the difference. I think I'm blathering on again. Was this supposed to be a specific question like car insurance (which has been answered), or a more general one (which I've been rambling on about)[quote="Simplicius]Insurance is a useful service, but it does not mix well with the profit motive.[/quote]Do you suppose it would be better as a public service? Those don't need to make a profit, after all.

[Simplicius]

Do you suppose it would be better as a public service? Those don't need to make a profit, after all.

From all I've heard, the public-insurance part of nationalized health care works as it's supposed to - members from countries that actually have those programs could attest to that better than I.

The idea is tempting - after all, the point is to have a large enough pool of money available that larger quantities can be made available to smallish groups of individuals when needed. Emergency funds are of reduced use when the entity that hold them takes all manner of measures to reduce the amount of payout it actually has to make, whether requiring legal proceedings or simply cutting coverage for those deemed most likely to require future assistance. There is unquestionably a social need provided by insurance when it comes to health and living essentials.

I wouldn't expect a private insurance industry to vanish, though, because there are plenty of expensive luxuries to insure which I wouldn't ask the public to take up the burden for. And of course, all of this might be rubbish talk since I know little about the detailed workings of the insurance industry.

[wjs7744]

From all I've heard, the public-insurance part of nationalized health care works as it's supposed to - members from countries that actually have those programs could attest to that better than I.

Well, I don't know that much about American healthcare, so I can't compare the two, but I don't see other countries rushing to adopt the American model.

I wouldn't expect a private insurance industry to vanish, though, because there are plenty of expensive luxuries to insure which I wouldn't ask the public to take up the burden for.

Even in England where we have nationalised healthcare, there is still private insurance available (egads! It isn't a monopoly!), so I don't see why such a dual system would be a problem.

[General Zod]

I think I'll let the numbers speak for themselves as to why it's a good idea to have insurance. I recently went in to get a root canal & crown at the dentist.

Root Canal + Crown w/o Insurance: $1,500.
Root Canal + Crown with Insurance: $800.

That's almost half the costs right there covered by insurance (not 100% sure on the cost without looking at the exact figures, but it's pretty damn close). Now imagine being forced to get more than one of these done, or cthulhu forbid, needing any type of orthodontic surgery. This doesn't include any costs for X-Rays or cleanings you might happen to need as well.

[Justforfun000]

Insurance IS necessary, but the industry still pisses me off immensely when dealing with car insurance. They are so heavy-handed towards people it's ridiculous. Now most companies at least generally forgive one accident, but God forbid you have two. They have the accident on record for SEVEN YEARS here in Canada. They were even talking about raising it to 10. That's absolutely ridiculous. If you have two at fault accidents, and it doesn't matter what kind by the way, we could be talking about a bang on a bumper, your insurance rates in Toronto are going to be at least $300 a month. If you do the math, you end up paying the price of a new car easily. I have a 7 start rating. The best, and it costs me about $70.00 a month downtown for third-party liability, NO collision coverage on my own vehicle. So the bare bones. So an extra $230 a month is $2760 a year. Lets say you have the two accidents somewhere about 3 years apart. That means for four years you'd pay those premiums until one drops off your record. That's almost $12000 you paid extra on TOP of your base premium.

That's fair? It's bullshit! Canada doesn't even allow those insane million dollar suits people in the US seem to pull out of their ass as a rule. You have to REALLY be injured, otherwise they have very strict codes on the amount you can sue for, and they generally frown on exaggerated "pain and suffering". I totally agree with this kind of format, but yet they are still charging exorbitant fees if you have some bad luck. How can they justify that cost? It's not really insurance in my opinion. You end up paying for it as if you WERE paying out of pocket in most cases. Probably more. Most people including myself, just settle it between each other and don't inform the insurance companies. Even so called not at fault accidents affect your record even though they lie and say they don't. CAA wouldn't even insure someone who had two not at fault accidents when they applied on line, but when they typed in differently, all of a sudden they were 'accepted'.

As I'm sure you can tell, I feel a little passionate about the subject.

I also think it's completely unfair how they target new drivers too. Yes I know that statistically they may be a higher risk bracket, but my 38 year old partner who used to be licensed years ago and just recently got his license again found out that he would actually be charged MORE for premiums then a friend who got nailed with an impaired charge. He lost 4 points and now pays $245 a month for 3 years. My partner did a quote and was told $350 a month. Again, JUST third-party liability. Not even covering his own vehicle. It's fucking ridiculous. They only get away with it because it's mandatory.

[aerius]

I buy it because it's cheaper and less painful than being ass-raped with no lube.

Insurance IS necessary, but the industry still pisses me off immensely when dealing with car insurance. They are so heavy-handed towards people it's ridiculous. Now most companies at least generally forgive one accident, but God forbid you have two. They have the accident on record for SEVEN YEARS here in Canada. They were even talking about raising it to 10. That's absolutely ridiculous. If you have two at fault accidents, and it doesn't matter what kind by the way, we could be talking about a bang on a bumper, your insurance rates in Toronto are going to be at least $300 a month. If you do the math, you end up paying the price of a new car easily. I have a 7 start rating. The best, and it costs me about $70.00 a month downtown for third-party liability, NO collision coverage on my own vehicle. So the bare bones. So an extra $230 a month is $2760 a year. Lets say you have the two accidents somewhere about 3 years apart. That means for four years you'd pay those premiums until one drops off your record. That's almost $12000 you paid extra on TOP of your base premium.

The key words are "at fault". If you don't cause accidents, you have nothing to worry about. For instance I have 4 insurance claims on my driving record totalling around $12k or so, all accidents were caused by other people doing stupid, unforeseeable, and illegal bullshit. I had no fault in any of the accidents, my insurance rates have actually been going down.

If someone's at fault for an accident, I see no problem with raping him on premiums for a few years, he's proven himself to be a higher risk driver and until he can prove that he's a safe driver and the accident was a one-off, I don't see why he shouldn't have to pay higher rates. As for how long accidents stay on record, nothing wrong with bumping it to 10 years. 1 at fault accident in 10 years is more than enough, 2 in 10 years is a shitty driver. Sucks to be a shitty driver, rape'em on premiums for all I care.

That's fair? It's bullshit! Canada doesn't even allow those insane million dollar suits people in the US seem to pull out of their ass as a rule. You have to REALLY be injured, otherwise they have very strict codes on the amount you can sue for, and they generally frown on exaggerated "pain and suffering". I totally agree with this kind of format, but yet they are still charging exorbitant fees if you have some bad luck. How can they justify that cost? It's not really insurance in my opinion. You end up paying for it as if you WERE paying out of pocket in most cases. Probably more. Most people including myself, just settle it between each other and don't inform the insurance companies. Even so called not at fault accidents affect your record even though they lie and say they don't. CAA wouldn't even insure someone who had two not at fault accidents when they applied on line, but when they typed in differently, all of a sudden they were 'accepted'.

Bad luck is when some assclown makes a left turn from the right turn lane and takes out your passenger side door. Bad luck is when a bird strike takes out your windshield on the highway. Had both of them happen, insurance paid everything minus my deductible and my rates never budged. But if you're an idiot like my co-worker who made a left turn without looking just as the light went red hoping that everyone had stoped, and get T-boned, tough shit. The other dope might've run a red light, but my co-worker never checked for traffic, they're both at fault, they both got reamed, and deservedly so.

I also think it's completely unfair how they target new drivers too. Yes I know that statistically they may be a higher risk bracket, but my 38 year old partner who used to be licensed years ago and just recently got his license again found out that he would actually be charged MORE for premiums then a friend who got nailed with an impaired charge. He lost 4 points and now pays $245 a month for 3 years. My partner did a quote and was told $350 a month. Again, JUST third-party liability. Not even covering his own vehicle. It's fucking ridiculous. They only get away with it because it's mandatory.

Key words, "years ago" and "new license". If a person hasn't driven for years, he's effectively an amateur to intermediate driver. You can't drop something for years, do a 10-25 hours of driving lessons and expect to have all the skills and experience come back just like that. Doesn't happen. He's effectively a new driver, and will be treated as one until he piles up a few accident free years.

[Sturmfalke]

Speaking of insurance in general, it does seem kind of odd, doesn't it? After all, taking out insurance is effectively a form of gambling, and intelligent people don't tend to do that so much (the lottery, for example).

When you gamble, you take a risk where you know that statistically your expected payout is negative (e.g. in the case of a lottery or slot machines etc.). People who gamble are betting on the chance that their payout is larger then what they invested, knowing that in all probability this is not going to be the case.

In the case of an insurance I would argue that it is different: Here the probabilities of an accident are not known and even if you don't spend the money for an insurance you would have to set money aside to be prepared for an accident. Knowing that there is the distinct possibility of an accident happening to you that costs so much that your savings and possibly your entire wealth are insufficient to pay for it (this can happen very quickly if you get sick or injure others), taking an insurance is a way of mitigating that risk.

So gambling = taking a risk and buying insurance = mitigating a risk, they are clearly not the same.

[Justforfun000]

The key words are "at fault". If you don't cause accidents, you have nothing to worry about. For instance I have 4 insurance claims on my driving record totalling around $12k or so, all accidents were caused by other people doing stupid, unforeseeable, and illegal bullshit. I had no fault in any of the accidents, my insurance rates have actually been going down.

I realize that, but I still don't think some minor accidents deserve a 7 year rate reflection and as I pointed out, you pay MORE then the bloody accidents would cost many times. To me that's not insurance. What other insurance plans end up costing you anything but a fraction of the true costs it's designed to protect you from? In the VERY rare cases of serious liability issue it's different, but I do NOT feel every single driver should be paying through the ass for those rare cases.

If someone's at fault for an accident, I see no problem with raping him on premiums for a few years, he's proven himself to be a higher risk driver and until he can prove that he's a safe driver and the accident was a one-off, I don't see why he shouldn't have to pay higher rates.

Agreed. BUT, they should only be for a reasonable period of a few years and not an exorbitant amount of an extra few thousand dollars a year if they were dents or dings that might have cost the insurance company $500 or less. I feel the type of accident should reflect the premiums, not this blanket punishment ranging from a bump in the fender to a total car write off.

As for how long accidents stay on record, nothing wrong with bumping it to 10 years. 1 at fault accident in 10 years is more than enough, 2 in 10 years is a shitty driver.

Now I completely disagree with you here. 2 minor at fault accidents in 10 years is really not that unlikely, and many technically "at-fault" accidents are in reality not that simple. Many times snow conditions can cause accidents that were simply bad luck. If someone in front of you slams their brakes on because a cat ran across the road and you cannot help but slide into them bumping their rear, you are still going to be cojnsidered "at-fault" because you hit them. Even though you might have been a reasonable distance and a reasonable speed, snow changes all the rules and sometimes things are unavoidable.

My major point is they charge far too high in many cases and for too long. It's exorbitant and unfair for many.

Now for very serious accidents which can clearly be shown as being the result of poor driving by the person responsible, yes by all means, nail them to the cross.

Key words, "years ago" and "new license". If a person hasn't driven for years, he's effectively an amateur to intermediate driver. You can't drop something for years, do a 10-25 hours of driving lessons and expect to have all the skills and experience come back just like that. Doesn't happen. He's effectively a new driver, and will be treated as one until he piles up a few accident free years

Well actually I consider it like driving a bicycle. I never had a license lapse, but I have sometimes gone for years without driving and it didn't have to be relearned at all for me. It was as if I never stopped driving. Still, maybe not all people are like that.

And I don't object to the new driver having higher premiums, but to have higher premiums then someone who had an impaired charge or two accidents? (It's about the same by the way). Essentially they are being treated guilty until proven innocent and paying the highest premiums right off the bat. I don't think that's even remotely fair. Maybe double is fine, but 400% higher?

As I said, the car insurance racket is mandatory and therefore they use it to their advantage so they can bilk the most money possible out of all people. I just think they shouldn't be able to force such high payments on people undeserving of it. True high risk drivers should be nailed because they have proven themselves to be. It's not right to bilk the shit out of every other driver with new experience or a couple of minor dents.

[Broomstick]

Now I completely disagree with you here. 2 minor at fault accidents in 10 years is really not that unlikely

Funny.

I've been driving almost 30 years now and I haven't had one.

and many technically "at-fault" accidents are in reality not that simple. Many times snow conditions can cause accidents that were simply bad luck. If someone in front of you slams their brakes on because a cat ran across the road and you cannot help but slide into them bumping their rear, you are still going to be cojnsidered "at-fault" because you hit them. Even though you might have been a reasonable distance and a reasonable speed, snow changes all the rules and sometimes things are unavoidable.

"Reasonable distance and speed" means YOU can stop without an accident. If you can't do that slow the fuck down. If snow or rain make things slick slow the fuck down.

It is YOUR responsibility to avoid rear-ending another car.

I just think they shouldn't be able to force such high payments on people undeserving of it.

If you have had 2 at fault accidents within 10 years - I don't give a damn how minor - then YOU are a higher risk driver and yes, you "deserve" to pay more. Don't like it? Maybe you should take a course to improve your driving, then drive so you won't get into at-fault accidents for 10 years.

If the damage was minor you were lucky. Personally, I don't want to be around when your luck runs out.

[Graeme Dice]

I've been driving almost 30 years now and I haven't had one.

Why does everybody treat their anecdotes like they are data?

If the damage was minor you were lucky. Personally, I don't want to be around when your luck runs out.

I don't really see what this has to do with the point of the argument, which is the well-known fact that private insurers in Canada charge far more, for worse coverage, than the public insurance companies in neighbouring provinces.

[Natorgator]

In the case of an insurance I would argue that it is different: Here the probabilities of an accident are not known and even if you don't spend the money for an insurance you would have to set money aside to be prepared for an accident. Knowing that there is the distinct possibility of an accident happening to you that costs so much that your savings and possibly your entire wealth are insufficient to pay for it (this can happen very quickly if you get sick or injure others), taking an insurance is a way of mitigating that risk.

So gambling = taking a risk and buying insurance = mitigating a risk, they are clearly not the same.

Exactly. I think a lot of people misunderstand your key point there at the end. Insurance is simply paying someone else to take on the risk that you have when you drive your car each day. If you choose to take a higher deductible, that means you are taking on a little more risk than someone who doesn't, and because of that your insurance company will be more likely to give you lower monthly premiums.

[Broomstick]

I've been driving almost 30 years now and I haven't had one.

Why does everybody treat their anecdotes like they are data?

You're right. I might just be an exception.

Let's see... my mother was in ONE accident during 45 years on the road. Someone ran a red light and t-boned the car - mind you, mom was third through intersection so it wasn't like the light had just changed.

My dad has been driving over 50 years. No accidents.

My eldest sister was a menace on the road - but she surrendered her license because she admitted she was a bad driver.

My next oldest sister has been driving 35 years. No accidents. So has her husband - no accidents.

My other sister has been driver 30 years. 1 accident - someone ran a red light and nailed her car, not her fault.

I have two nephews and niece who drive. No accidents.

JustForFun says two at-fault accidents in 10 years is "not unlikely". Oh really? Based on my family it's not. The only person who got into even one at-fault accident was - surprise! - a bad driver. Yeah, I can understand one fuck up, but it sounds like someone in denial to me.

If the damage was minor you were lucky. Personally, I don't want to be around when your luck runs out.

I don't really see what this has to do with the point of the argument, which is the well-known fact that private insurers in Canada charge far more, for worse coverage, than the public insurance companies in neighbouring provinces.

The insurer doesn't want to be around when the bad accident happens either, but they have to be, so they charge more in anticipation that the bad driver will cost them down the road.

Also, you may want to clarify your statement - last I heard "Canada" was a country, not a "province", and if you're referring to a particular province I haven't a clue which one.

Here in the states auto insurance in mandated, too, and if you get into accidents your rates go up. That's a standard practice. If you find yourself getting into accidents on a regular basis look in the mirror for the problem, not in your insurance policy.

[Justforfun000]

JustForFun says two at-fault accidents in 10 years is "not unlikely". Oh really? Based on my family it's not. The only person who got into even one at-fault accident was - surprise! - a bad driver. Yeah, I can understand one fuck up, but it sounds like someone in denial to me.

Well I haven't had an accident in almost 10 years myself so I guess I'm sort of failing my own argument..

Bu 10 years is a VERY long time, and I don't have an objection to the rising rates you would pay, it's the exorbitant rise that I object against. If I had two accidents within those ten years and lets say one was a minor fender bump costing $500, and the second was a bit more serious. Maybe the car slid on ice and sideswiped another car. So the total cost was $3500.

That's $4000 damage the insurance company pays. Per the examples I gave before, I could easily pay more then THREE TIMES that much back to the insurance company before my rates go back to a reasonable level. What the fuck kind of 'insurance' is that? It's more like they are forced on you as your broker that gets a hefty commission for the money needed to pay the damage.

I just don't see that kind of charge to be even remotely fair. Insurance is supposed to be in place to protect people from being bilked for charges they could not afford. What kind of system is it that they end up making a bloody huge PROFIT on 99% of the driver's with minor to moderate accidents?

I just feel that only the driver's with clearly very dangerous or careless driving, and impaired drivers of course, should be nailed with the 400% mark up costs for many years. Sometimes people have bad luck and accidents happen. You try your best to minimize the chances, but we're human and circumstances can sometimes throw you a curve ball. Dogs can run in front of your car resulting in you swerving to avoid them and hitting another car. Black ice is sometimes unexpected and once you slide you lose control until it hits a clear section again. Thankfully most people do their best to control their car in unexpected circumstances and many times they succeed, but we aren't perfect.