What is the Point of Insurance?

There is an old insurance saying that goes something like this, “Insurance… it’s better to have it and not need it, than to need it and not have it”.

Of course, if we think carefully about the message it sends this does make a lot of sense, but there are those who will argue that all the premiums they have spent with insurance companies of many years add up to a great deal of money – especially when they have made no claim in those years.

The point of insurance is that you are paying a sum of money – rather like a bet – and you are saying (betting) that you believe that any given or specified event, like the wind blowing down a fence on your property, may happen and naturally you would rather that someone else pays for the damage. By contrast the insurance company is accepting the bet and, at the same time, hoping that the wind blows elsewhere and leaves your fence alone. That is the risk the insurer takes and why you, as the insured, pay your premium.


Commercial property, residential buildings and personal effects Insurance is, of course, somewhat different from ‘assurance’, like life ‘insurance’. The use of the word insurance in this context is actually inaccurate, because life assurance is slightly different yet still a bet whereby you, the ‘assured’, are betting the company offering you the life cover that you won’t die. The company is accepting the wager, knowing full well that you will eventually have to cease paying them premiums! Silly really, but that’s the way it is.


Having cleared up the simple difference between insurance and assurance we can take a look at the various reasons why insurance costs so much. It comes down to one thing – risk. In the eye of the insurer you are one big risk; more accurately, a bag of risks. Your gender, your marital status, age, insurance history, which model of car you own and even which type of neighbourhood you live in all add to the statistical calculations on who-pays-how-much-for-what-amount or standard of insurance cover.

Not all insurance companies calculate the risks using exactly the same benchmarks, so it is useful from a cost-saving angle to shop around. Although insurers tend to stick to certain markets and types of cover, they still have to be competitive, which means that if you locate one that specialises in the cover you are seeking the chances are their premiums will be lower than another that does not concentrate so heavily on those areas.

Some also operate their business more efficiently and can therefore pass on their cost saving to the client. It may require a little research on your part, but by combining these two shopping techniques you can save yourself hundreds of shekels every year on your premiums.

The main thing to remember about insurance is that it probably is a necessary evil.

It is also one cost in your life on which, one day, you could be happy that you kept the premiums up to date. Many people have been heard to say that rather than pay premiums to an insurance company they should save the money each month, place it in a separate interest-earning account at the bank and then use the accumulated funds when something goes wrong. It would be an interesting exercise to research just how many have actually done it.

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