Question
What's the point of insurance if you don't get more than what you put in...?
What's the point of insurance if you don't get more than what you put in...? Let's assume, for example, you have just taken out an automotive and household insurance policy, and you paid your first premium for the month, which is R550. Now, unfortunately, somebody steals your car and somebody breaks into your house and steals a computer and TV. All three items are valued at more than $50 000 combined. Now, will the insurance company pay for all these things (given the fact that all you've paid already is $550 in premiums)? ANd I can suppose that anyone who is successfully paid out by hte insurance ocmpany will immediately end their policy. Personally, I am "self-insured". So the money I receive each month from parents ("student pocket money") I keep aside for expenses from fuel for the motorbike, food and insurance, all kept in cash in a safe. So I see no reason to go to an insurance enterprise to pay your damages on your behalf using YOUR own money. And what's more disturbing is that some insurance company actually PAY you NOT to claim. So you get "cash-back" after, say, 4 years of claim-free years. Why?
4 weeks ago - 2 answers
Best Answer
Chosen by Asker
Insurance is NOT a moneymaking scheme. The POINT is, to transfer risk you can't avoid, and can't afford, to the insurance company. It's a financial tool. Your examples are for property claims. Property claims are the EASIEST to self insure - you KNOW, up front, the most you can lose. Wealthy people WILL self insure property claims, when the most they can lose, is something they can afford - the value of the house, or the value of the television. The claims that even wealthy people don't want to take on themselves, are LIABILITY claims, or HEALTH claims. Yes, if you have a 'bad year' and rear end three different cars causing back injuries, or God forbid, killing someone, it's MUCH more pleasant to pay $2,000 for the entire year, for your liability insurance for two cars, than it is to have to pay $100,000 THREE TIMES, for each accident. Or more. Not to mention, the attorney fees for defense costs for frivilous law suits, can run you out of business - so you want to transfer those to the insurance company, also. Some insurances are required by law - auto insurance if you drive on public roads, or workers compensation if you have businesses. But the main problem here, is that you're looking at insurance as an investment. It's NOT. It's a financial tool. Just wait until you have your first $50,000 claim, and then see how happy you are being self insured. Oh, and 'cash back' isn't 100% - it's a dividend from mutual companies, you're lucky to see 5% back. So. Do more research. Educate yourself more, about what insurance is - and is not.
by mbrcatz
4 weeks ago
Asker's Rating: 
Other Answers
If you're independently wealthy and have no problem covering a catastrophic loss out of your own pocket you are probably right, you don't need it. But let's imagine you're just a regular hardworking guy and you have bought a house for $100,000. You have paid off $30,000 of that and still owe the bank for the other $70,000. You don't have insurance. A fire or tornado, etc. comes along and destroys your home. You now have no place to live. You have lost $30,000 of your own money and still owe the bank $70,000 for a home that doesn't even exist anymore. Your life is essentially ruined. Paying the insurance premiums is definitely worth the peace of mind to me. Of course you are living off your parents right now. So I would say that you are already insured - by them. Once you are independent I suspect you may rethink your attitude towards insurance.
by Thunder- 4 weeks ago