Insurance is like gambling, don't overdo it

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2021-06-20 07:00:04

You can insure anything these days. From satellite launches to the screen on your smartphone. But not all insurances are created equal. When does it make sense to get insurance, and when will it only cost you extra money? This post describes what insurance is, and it might change your mind on whether you need it or not.

An arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium.

The definition is a complex way of saying that you’ll pay someone a small amount of money, and they promise to pay you much more if an improbable event happens. It’s the same as a bet, but you don’t want to win.

Betting and insurance have one thing in common. You pay more than what’s your chance to win. The betting/insurance company needs money to pay salaries, bills, and shareholders.

Let’s say that the chance your house burning down this year is 1 in 10,000 and that your house costs $100,000. That means that you should pay a $10 fee (called the premium) to insure your house against burning down.

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