Insurance - Betting Against Oneself

I remember as a 20 year old a friend who, like me, was single with no dependents buying life insurance. I commented that it seemed to me like betting that you’re going to die. If you don’t die, you lose. The only way to win is by dying.

Insurance: The Necessary Evil

You are correct in one sense. With all insurance, you are betting that some peril will befall you. However, it is bet that you hope you lose. You don't want a fire to consume your house. You don't want to have your car totaled in an accident. You don't want to have serious health problems. You don't want to die prematurely. Yet, these things do happen. That is why we buy the insurance. We buy the insurance in case one of these perils befalls us. But in a very real sense, if we don't have to use the insurance, we win. Why? Yes, we are out the insurance premium. But we don't have to suffer the loss of our home, our car, our health, or our life (prematurely).

Having said that, are insurance companies not-for-profit entities? Hell, no! How do you know an insurance company is making money? Their doors are open. Some people choose to self-insure. This appears to be a viable alternative with regard to health insurance in Mexico. However, I do like the idea of investigating the catastrophic life flight insurance.

In the case of the 20 year old buying life insurance. Assuming this person did not have children or others that depended upon him or her for their financial wellbeing, the odds are that a life insurance agent convinced this person that buying life insurance was a good long-term investment. LIAR! A 20 year old person without dependents does not need life insurance, period. But we insurance agents do need to make our boat payments so we will sell someone a whole life policy, cash value life policy, universal life policy, variable life policy, ordinary life policy, straight life policy, etc. even if the client has no need whatsoever for life insurance. Notice the long list of different names for these accused policies? That is because once consumers get hip to how they are being screwed, the industry changes the name. The new name is permanent life insurance. (My apologies. I get a bit hot under the collar when I think about the injustices our industry metes out upon the population.)

Look, if you have a spouse or children who depend upon you for their financial wellbeing, there is a very high probability that you should have life insurance. Research term life insurance. It is cheap and will give you enough life insurance in the sad event that you die prematurely. But again, if after 20 years and the kids are grown and your spouse could survive on your own and the term life runs and you didn't die, congratulations! You lost the best against yourself but you are still alive.

Again, my apologies. I can talk about finance and investments far longer than any reasonable person would ever want to listen.

Check out chapter 10 on Life Insurance from our Principles of Money Management class at https://wonderprofessor.com/121

Thank you for reading.