Over the years, countless people have told me that buying insurance is nothing more than gambling. It happened last week at my Rotary meeting.
It is simply not true. Gambling creates risk, while insurance addresses and protects you from existing risk. When you gamble, you can finish in one of three places: a winner, a loser, or break even. You also can choose not to play.
Insurance addresses the risks you already face. You own a building. You must be sure it's still there tomorrow. The next day the building either is there or it's not. Insurance, unlike gambling, does not create risk.
Insurance passes the risk of loss from you to the insurance company. That's why "self-insurance" is a misnomer. You either buy insurance or you don't. If you don't buy insurance you are funding the risk yourself, also known as "retention": you retain the risk.
It is simply not true. Gambling creates risk, while insurance addresses and protects you from existing risk. When you gamble, you can finish in one of three places: a winner, a loser, or break even. You also can choose not to play.
Insurance addresses the risks you already face. You own a building. You must be sure it's still there tomorrow. The next day the building either is there or it's not. Insurance, unlike gambling, does not create risk.
Insurance passes the risk of loss from you to the insurance company. That's why "self-insurance" is a misnomer. You either buy insurance or you don't. If you don't buy insurance you are funding the risk yourself, also known as "retention": you retain the risk.
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