Saturday, June 16, 2007

Insurance: Is it REALLY Worth It?

Insurance can become extremely expensive. Health insurance ranges from under $100 for an extremely healthy young person, to thousands of dollars per month for individuals with serious illnesses. Car insurance also has a wide range and even for a driver with a good driving record can cost several hundred dollars for full coverage insurance. Even lower levels of insurances that seem to be cheap can be quite costly when several factors are considered. With insurance currently costing so much, and with the rates of insurance only going higher and higher, a question that comes up is, “Is it worth it?” Off and on over coming posts, I'm going to be examining the question of the ‘worth’ of several different types of insurance.

Before examining specific types of insurance, I think it’s beneficial to consider how insurance works, that is to look at insurance from a purely statistical perspective. When an insurance company pays out to a client, they often loose money on that client. How do insurance companies not go broke? It's pretty simple really. They collect funds from a large group of people, invest those funds, and pay out to the few who qualify for distributions. Insurance is beneficial to many individuals because it provides them with protection they can not provide for themselves. It is profitable for the company because the average person will pay more in premiums (and the interest on those invested premiums) then they receive in payments. Therefore, mathematically and statistically, each of us would be better off without any insurance whatsoever. HOWEVER, IT IS BY NO MEANS MY SUGGESTION NOR MY LIFESTYLE TO LIVE WITHOUT ANY INSURANCE.

Those who purchase insurance do not purchase insurance because they plan to be the average person who pays in more than they receive in benefits. Nor do they plan to have a car accident or disease so they can get their money’s worth from the insurance company. They recognize that they may be the one who isn’t average - they may face a situation which they cannot provide for, and so insurance provides protection in case that happens.

The question, “Insurance: Is it really worth it?” is therefore not entirely simple, nor is the answer the same for every individual. This is a question that must be asked and answered in each category by each individual. Over the next few posts, we’ll simply be examining some things to help answer this question in these areas.