Insurance Is About Cooperation

Many people see insurance of any kind as an expense. It is hard for them to put it into the context of cost/value. The structure of cooperation is hard to see at first.

The Statistics

Life insurance is cheap when you are young. That’s easy to understand. Young people without serious illnesses are unlikely to pass away in the next decade, and only a few will before they’re 60. That’s why $1 million of term life insurance on a 35-year-old female non-smoker has a premium under $400 a year.

Males pay more than females apparently because maleness is a birth defect, and so they die sooner.

Smokers pay more. It affects your health adversely, and they have statistics to prove it.

Car insurance other than liability coverage is closer to a prepaid expense fund. Liability insurance is a real insurance item but seldom paid.

Many people pay premiums for years and never have a claim. Are they insurance poor?

The value side

Few of us can easily afford a premature death, a house destroyed by fire, or a multi-million dollar claim resulting from a car crash. We solve that by cooperating. We each pool a little money, the premium, and invest the money. Should any of us have a claim, the fund pays. The unfortunate person with the claim is helped at a cost of little to the others.

The trick is to know the likelihood of the occurrence and to have a very large pool of premium payers. Knowing those, the investment expectation, and the administrative costs, you can calculate an equitable premium. That’s what actuaries do.

The value for almost all of us is the peace of mind of knowing we will be made whole financially if disaster strikes. It’s hard to assign a value to that.

Some thoughts

The true insurance poor are those who have a disaster but no coverage.

When you have adequate coverage, you can use the rest of your money without concern about providing a disaster cushion. That could be a net positive, even given the premiums.

Appropriately designed insurance is a rational expenditure. Know the purpose and examine the choices available.

The best insurance paradigm is some event with a  very high cost and low probability.

Insurance has been around for centuries, and it lasts because it works. It’s one of the elements of civilization.

I build strategic, fact-based estate and income plans. The plans identify alternate and effective ways to achieve spending and estate distribution goals.

Be in touch at 705-927-4770 or by email at

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: